Question

Jeff, a single taxpayer, operates a bicycle shop. For the calendar year 2017 he reports the following items of income and expense:
Gross income from business. . . . . . . . . . . . . . . . . . . . . . . . . . . . .$150,000
Business operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . .210,000
Interest income from investments. . . . . . . . . . . . . . . . . . . . . . . . .7,000
Casualty loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4,000
Interest expense on home mortgage. . . . . . . . . . . . . . . . . . . . . . .9,000
Long-term capital gains (nonbusiness) . . . . . . . . . . . . . . . . . . . . .3,000
Long-term capital loss (nonbusiness). . . . . . . . . . . . . . . . . . . . . . .5,000
Long-term capital gains (business) . . . . . . . . . . . . . . . . . . . . . . . .1,000
The casualty loss represented the uninsured theft of R’s personal auto worth $4,100 ($9,000 adjusted basis).
a. Compute R’s net operating loss for 2017.
b. Assuming R carries the loss back to 2015, when must the corrected return for 2015 be filed?
3. T purchased the following lots of stock in Z Corporation:
50 shares 1/12/2008 Cost $1,200
100 shares 2/28/2013 Cost $3,000
75 shares 10/16/2014
Cost $2,500
T sold 75 shares on January 16, 2017 for $2,800. His only instruction to his broker, who actually held the shares for T, was to sell 75 shares.
a. How much gain or loss does T recognize on this sale?
b. How could this result be altered?

4. B is single and reports the following items of income and deductions for the current year:
Salary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000
Net long-term capital gain on sale of investment property. . . . . . . . 200,000
Medical expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,500
Casualty loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,500
State and local income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
Charitable contributions (all cash). . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
Interest on home mortgage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000
Interest on investment loans (unimproved real property) . . . . . . . . . 10,000
B made the election to treat $10,000 of the net long-term capital gain as investment income. The only additional transaction during the year was the exercise of an incentive stock option of her employer’s stock at an option price of $12,000 when the stock was worth $100,000. Compute B’s tax liability and AMT, if any.

Answer 1

a) Calculate net operating Loss

R's income

Gross income from business = $150000

Interest comes from investments = $7000

Long-term Capital gains(non-business) = $3000

Long-term Capital gains(business) =$1000

Income =$161000

R's Expenses-

Business operating expenses =$210000

Casualty Loss=$4000

Interest expense on home mortgage=$9000

Long-term capital loss (nonbusiness)=$5000

auto Theft worth =$4100

Expenses are $232100

Loss =$161000- $232100 =-71100

Deductions

Loss =$71100

Standard deduction =$6350

Personal deductions=4050

Total deductions = $81500

Deductions- adjustments = $81500 - $9000 = $72500

NOL(Net Operating Loss) = income - loss covered by deductions

=$161000 - $72500 = $88500

b)income tax return is filed on time in case of loss also. losses cannot be carry forward without filing a return. it should be filed in 2015. After losses are carried in next financial years.

3. a) T purhased

Total no. of shares = 50 +100+75 = 225

Total cost for Purchase is =1200 + 3000 +2500 =$6700

average purchase price/share is = 6700/225 =$29.78

Sold shares

no. of shares = 75

sales amount = 2800

price per share = 2800/75 = $37.33

average profit/ share is $37.33 - $29.78 =$7.56

$7.56 profit is earned by T by selling shares

b)Result is in favour of T. on calculating average price/ share, average profit is earned by T , which is $7.56. there is no need to alter the result, but profit can further increased by sold shares when their market price is more than 37.33 /share. selling shares at less than $26 tends towards loss for T.