Question

Problem 3-25 (b) (L0. 1, 8) The following information applies to Zachary, who is single, for 2019: $73,200 Salary Alimony paid to his ex-wife (decree executed prior to January 1, 2019) Child support payments Cash prize from lottery Capital gain from sale of personal sail boat Appreciation in value of land purchased for investment Capital loss from sale of corporate stock Number of potential dependents Age 12,200 9,000 10,000 6,000 25,000 (2,000) 51 Zachary maintains a household for his uncle, who lives in another state. His uncle earned $23,000. Click here to access the standard deduction table to use. Indicate whether the following items are taxable or nontaxable to Zachary. Taxable Taxable Capital gain from sale of personal sail boat Cash prize from lottery Salary Appreciation in value of land purchased for investment Taxable Not taxable Identify whether the items are deductible (fully or partially) by Zachary.

Answer 1

We have some income and expenses details of Mr. Zachary for the year 2019 and we have to calculate his taxable income for Year 2019 after allowable expenses.

We have also information for taxability of income and deductibility of expenses as summarized below:

Type                      Description                                                        Amount ($)                         Taxability/Deductibility

Income                 Salary                                                                  73,200                                            Taxable

Income                 Cash Prize from Lottery                                     10,000                                           Taxable

Income                 Capital Gain from sale of personal sail Boat         6,000                                             Taxable

Income                 Appreciation in value of land                               25,000                                            Non-Taxable                                      (Purchased for investment)

Expense               Alimony Paid to his Wife                                      12,200                                            Deductible

Expense               Child Support Payments                                        9,000                                            Non-Deductible

Expense               Capital Loss on corporate stock                              2,000                                            Deductible

Secondly, maintaining household of uncle is irrelevant for the question.

Now to Calculate taxable income, we must include all Gross Taxable Income (A) and reduce deductible Expenses (B).

And we know from above taxable incomes are:

             Income                                                                Amount ($)

Salary                                                                      73,200

Cash Prize from Lottery                                       10,000

              Capital Gain from sale of personal sail Boat            6,000

Total (A)                                                              $ 89,200

And here are deductible expenditure:

             Expense                                                               Amount ($)

Alimony Paid to his Wife                                    12,200

             Capital Loss on corporate stock                          2,000

Total (B)                                                               $ 14,200

Assumptions: It is assumed standard deduction is NIL in absence of table as mentioned in question.

Hence Net taxable income will be Gross taxable income (A) less Deductible Expenses (B)

= $ 89200 – $ 14200

= $ 75,000

So final taxable income of Mr. Zachary will be $ 75,000. (Subjected to standard deduction as per note of table in question).