Ken is 63 years old and unmarried. He retired at age 55 when he sold his business, Understock.com. Though Ken is retired, he is still very active.
Ken reported the following financial information this year. Assume Ken’s modified adjusted gross income for purposes of the bond interest exclusion and for determining the taxability of his Social Security benefits is $70,000 and that Ken files as a single taxpayer. Determine Ken’s 2009 gross income.
a. Ken won $1,200 in an illegal game of poker (the game was played in Utah, where gambling is illegal).
Ken will need to include this amount as income. Ken will not be able to use the deduction for gambling loses.
b. Ken …show more content…
f. Jeremy paid $4,500 for health insurance coverage for himself. Alyssa was covered by health plans provided by her employer, but Jeremy is not eligible for the plan until next year.
g. Jeremy paid $2,500 in self-employment taxes.
h. Alyssa contributed $4,000 to ST’s employer-provided traditional 401k plan.
i. Jeremy paid $5,000 in alimony and $3,000 in child support from his prior marriage.
j. Alyssa paid $3,100 of tuition and fees to attend night classes at a local university. The Johnsons would like to deduct as much of this expenditure as possible rather than claim a credit.
k. The Johnsons donated $2,000 to their favorite charity.
Alyssa and Jeremy Johnson's AGI
Business expenses Jeremy
Salary and employment taxes
Cost of goods sold
Rent and administrative fees
Total business expenses
Business expenses must be ordinary and necessary to be deductible. Ordinary expenses must be common in the trade of the business. Business expenses are costs associated with conducting business. These expenses are deductible is the business is being operated to make a profit. (IRS,2013,p.1)
Unreimbursed employment expenses
Real property expenses
Taxes and investment expenses are deductible from AGI not for AGI. To be deductible investment related expenses must exceed 2% of the adjusted gross income.