2. Shela is single and works for a law firm. In the 2016 tax year, she made $110,000 this year in
salary and $10,000 of gross interest income from a corporate bond. Her law firm withheld
$16,000 of tax from her salary this year. In addition to the above, the following occurred this
year:
She paid $7,000 in interest on her mortgage for her primary residence.
BELOW - ALL
She had a rental loss (had greater expenses as a land lord than revenue) by $2,000.
ABOVE - ALL
She sold stock she had held for 9 months at $4,000 less than her tax basis at the time of
the sale.
ABOVE - $3,000 (CARRYFORWARD $1,000).
Shela owned a 20% interest in a partnership during the year. The partnership had a
$20,000 loss from operations during the year and made no distributions.
ABOVE – 20%
X $20,000 = $4,000
Shela volunteers for the Red Cross using her legal skills to do administrative work for the
charity. She estimates her time volunteering is worth $5,000.
NO DEDUCTION ON
SERVICE FOR CHARITABLE ORGANIZATION.
This time. I will accept the answers in green below as well if you had done the problem
including the bullet instead. However, I will not do so in the future. Make sure you check your
email/Blackboard to be on top of communications for the course. – note to self for next year –
remove all the green.
Use individual tax formula
:
Wages and interest income = $120,000
FOR AGI = - $2,000 - $3,000 - $4,000 = – $9,000
AGI = 111,000
ITEMIZED
DED. POSSIBLE = – $7,000
or -9,000
USE ITEMIZED DEDUCTION
EXEMPTION(S): -$4,050
TAXABLE INCOME: $99,950
or $97,950
TAX LIABILITY:
$19,990 or
$19,590
PREPAYMENTS: $16,000
TAX DUE (REFUND): $3,990
or $3,590
ANSWERS:
A) $111,000 AGI.
B) $7,000 or
-9,000
OF ITEMIZED DEDUCTIONS POSSIBLE
C) ITEMIZE.
D) $3,990
or $3,590
TAXES DUE.
3

3. Kevin is single. In 2016, he earned $65,000 in salary this year from his employer and received
$10,000 in alimony from his ex-wife. His employer withheld $9,000 in tax from his salary this
year. In addition to the above, the following occurred this year:
He decided he did not like his nose. So he paid $2,000 in cosmetic surgery to make it
larger and more defined.
NOT DEDUCTIBLE
He paid $2,500 in union dues and for subscriptions to publications related to his work
that were not reimbursed by his employer.
BELOW – BUT ONLY OVER 2%
AGI
$2,500. Threshold = 2%x$75,000 = $1,500. So, get $1,000 of deduction.
He paid $15,000 in rent his apartment for the year.
NOT DEDUCTIBLE
Use individual tax formula
:
GI = $75,000
FOR AGI = $0
AGI = 75,000
ITEMIZED
DED. POSSIBLE = – $1,000
USE STANDARD DEDUCTION -$6,300
EXEMPTION(S): -$4,050
TAXABLE INCOME: $64,650
TAX LIABILITY: $12,930
PREPAYMENTS: $9,000
TAX DUE (REFUND): $3,930
ANSWERS: