Federal Taxation
Ken and Barbie live in Mill Valley, California. They have one daughter who was born in 2011. Their daughter lives with them and they claim her as a dependent. The personal exemption for this problem is $4,000 per exemption. Ken is an employee of Company X and Barbie is a Consultant with her own business. They own their home.
They have a brokerage account that produced the following income for them: $2,609 of taxable interest, $1,724 of tax-exempt interest, total dividends of $2,682. Included in total dividends were $2,393 of qualified dividends. Ken and Barbie sold two stocks in 2016. They sold 500 shares of Safeway stock for $54,133 and 60 shares of Newtech Co. for $11,848. They had purchased the Safeway stock in 2008 for $40,000 and purchased the Newtech stock in 2010 for $12,000.
Ken and Barbie own a rental property in Santa Cruz. They used their property for one week during 2016. It was rented to unrelated persons during the rest of the year.
Ken's Mother died and he received an inheritance of $100,000 in 2016. Ken paid $12,000 of alimony to his ex-wife in 2016.
Other details relating to these items of income and expense are below:
Taxable wages from Company X $34,928
State income tax withheld from Ken's wages in 2016 $2,900
Property taxes paid on their personal residence $20,657
Mortgage interest paid on their personal residence $21,654
Investment management fees paid to Their broker for
managing their assets. $3,836
State income taxes paid with their 2015 return in April of 2016. $18,225
Barbie's Consulting Income $6,500
Consulting expenses:
Supplies $210
Telephone $560
619 miles driven to client appointments and meetings (use 54 cents per mile.)
Parking tickets $310
Meals with clients $650
Income and expenses related to the rental property:
Rental income 137,188
Advertising 947
Cleaning 4,380
Insurance 1,449
Mortgage payments (principal & interest) 15,501
Repairs 2,457
Supplies 5,113
Taxes 9,301
Utilities 3,936
Depreciation 17,475
Other expenses 98
Mortgage loan balance 01/01/2016 240,000
Mortgage loan balance 12/31/2016 235,000
1. Calculate Barbie's net income from her Consulting business.
2. Calculate Ken and Barbie's net income from the rental real estate.
3. Calculate Ken and Barbie's deductible itemized deductions.
4. Calculate Ken and Barbie's adjusted gross income.
5. Calculate Ken and Barbie's taxable income.