Question

Homework Help, will rate: Compute Melissa's 2020 AGI, taxable income and tax liability on the basis of the following information. Her filing status is single and she is age 40. Show all of your work in good form.

Salary $85,000

Interest on PA Municipal bonds $2,000

Interest on bonds issued by Xerox $2,000

Alimony payments received (divorce finalized in 2015) $5,000

Contribution to traditional IRA $$5,000

Gift from parents $30,000

Capital gain from stock investment, held for 7 months $$8,000

Amount lost in football betting pool $3,000

Answer 1

Ans: Computation of Melissa's Adjusted Gross Income for the year 2020:

Particulars	Amount ($)
Salary (Note-1)	$85000
Interest on PA Municipal bonds (Note-2)	$0
Interest on bonds issud by Xerox (Note-3)	$2000
Alimony payment received (divorced finalised in 2015) (Note-4)	$5000
Gifts from Parents (Note-6)	$0
Capital gains from stock investment (Note-7)	$8000
Less: Amount lost in football betting pool (Note-8)	$0
Less: IRA deduction (Note-5)	($5000)
Adjusted Gross Income of Melissa	$95000

NOTES:

1. Salary received is included in gross income as they are for the services provided by Melissa to her employer in the course of employment.

2. Interest Income from Municipal bonds are tax exempt therefore they are not included in gross income

3. Other interest income are taxable and hence interest income from Xerox bonds are taxable.

4. Melissa's divorced was finalised in 2015 it means they are legally separated and do not live together. Therefore, the amount received by Melissa from her former spouse qualify as alimony and has to be reported in Form 1040.

5. For the year 2019 and 2020, if you are less than 50 years of age, your maximum traditional IRA deduction will be $6000 from the total contributions made. Melissa would be eligible to a deduction of $5000. IRA deduction is above the line deduction

6. The person who gives gifts of value more than $10000 has to report the gift to IRS and pay gift tax on that gift. But the person who receives the gift is neither liable to report the gift nor pay taxes on the gifts. General exceptions to the value of more than $10000 are:

• Gifts to own spouse
• Gifts to political organizations
• Gifts to charitable institutions or charities
• Tuition or medical expenses paid directly for to the respective institute for someone's benefit

Here, Melissa received gifts from her parents of $30000. Melissa is not required to report or pay taxes on such gift. Her parents are laible to do the same.

7. Capital gains from investment held for 7 months are short term capital gains and are liable to be reported in Form 8949 and taxed as ordinary income as per federal income tax rates. IRS Form Schedule D would be used to report capital gains and losses.

8. IRS allows you to deduct gambling losses but only to the extent of your winnings. It also specifies that you cannot net off the amount of winning with losses and report the net amount. It means that IRS does not allow you to deduct losses from gambling without reporting any winnings. Therefore, amount lost in football betting pool of $3000 is not deductible.