Question

Use 2017 Federal income tax laws and regulations

You must show all computations

James and Molly are married couples, both 62 years old and both retired from their respective companies last year. Both James and Molly rolled their employer retirement accounts over into self-directed individual retirement accounts. james is starting withdrawals from his account this year. They are planning to hold off on withdrawals from Molly's account until the required age of 701/2.

Their daughter jane has a child, a three year-old named Nancy. Molly and her husband are in the 25% tax bracket. When Nancy was born, the Powers set up a Crummey trust for her, which they funded with a tax-exempt joint gift of $20,000 and a subsequent gift of $8,000 the following year.

After spending the last six months traveling around Europe and the Caribbean, the Powers would like to settle down and establish a counseling service for high school students planning to enter college and for college students looking forward to entering the job market. They have discussed this with another couple with similar interests and backgrounds and jointly feel there is a large potential market in their metropolitan area. Net annual income from the counseling service is estimated at $60,000.

The Powers own their own home and a hillside vacation lodge in Vermont. The use the lodge infrequently, no more than a week or ten days per year, and manage the rental and maintenance of the property themselves. The Powers are interested in getting into their own business, having significant income, and in minimizing their tax burden.

Their anticipated financial information for 2017 is as follows: Salary	$         0
Taxable interest income	6,800
Tax-exempt interest	2,200
Dividend income	16,000
fame's IRA distribution	48,000
Rental income from lodge	3,300
Long-term capital gain	3,800
Short-term capital gain	1,260
Loss from oil and gas working interest	1,020
Lucy's trust income	2,100
Medical and dental expense	3,200
State and local income taxes	1,200
Real estate taxes (home)	2,300
Real estate taxes (lodge)	600
Mortgage interest (home)	7,000
Rental costs (lodge)	910
Carryover long-term capital	680
Gifts to charity	2,940

POWERS CASE APPLICATION QUESTIONS

1. Which of the following amounts is the

Powers' gross income? (MUST SHOW CALCULATIONS FOR EACH ANSWER)

A. $75,950

B. $77,290

C. $78,050

D. $78,090

E. $79,190

2. Which of the following amounts is the

Powers' adjusted gross income?

A. $70,650

B. $72,650

c. $74,650

D. $75,950

E. $78,050

3. Which of the following amounts is the

Powers' taxable income?

A. $54,610

B. $55,650

C. $58,560

D. $62,510

E. $68,050

Answer 1

	Computation of Gross, Adjusted Gross and Taxable Income,
	Particulars	Amount, $
	Taxable interest income	6800
	Tax-exempt interest	2200
	Dividend income	16000
	fame's IRA distribution	48000
	Rental income from lodge	3300
	Long-term capital gain	3800
	Short-term capital Gain	1260
	Loss from oil and gas working interest	1020
	Lucy's trust income	2100
	Medical and dental expense	3200
	State and local income taxes	1200
	Real estate taxes (home)	2300
	Real estate taxes (lodge)	600
	Mortgage interest (home)	7000
	Rental costs (lodge)	910
	Carryover long-term capital	680
	Gifts to charity	2940
1	Powers Gross Income:
	Taxable interest income	6800
	Tax-exempt interest	2200
	Dividend income	16000
	fame's IRA distribution	48000
	Rental income from lodge	3300
	Long-term capital gain	3800
	Rental costs (lodge)	-910
	Option E	79190
2	Powers Adjusted Gross Income:
	Gross Income	79190
	Medical and dental expense	1600
	Gifts to charity	2940
	Option C	74650
3	Taxable Income:
	Adjusted Gross Income	74650
	State and local income taxes	1200
	Real estate taxes (home)	2300
	Real estate taxes (lodge)	600
	Mortgage interest (home)	7000
	Carryover long-term capital	680
	Loss from oil and gas working interest	1020
	Tax-exempt interest	2200
		59650