Problem 6-45 (LO. 3) Alex, who is single, conducts an activity in 2020 that is appropriately...

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Problem 6-45 (LO. 3) Alex, who is single, conducts an activity in 2020 that is appropriately...

Problem 6-45 (LO. 3)
Alex, who is single, conducts an activity in 2020 that is appropriately classified as a hobby. The activity produces the following revenues and expenses:

Revenue	$18,000
Property taxes	3,000
Materials and supplies	4,500
Utilities	2,000
Advertising	5,000
Insurance	750
Depreciation	4,000

Without regard to this activity, Alex's AGI is $42,000.

Determine the amount of income Alex must report and the amount of the expenses he is permitted to deduct. Assume Alex itemizes his deductions.

Reportable income:
Deductible expenses:

business accounting

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Answer 1

Answer #1

These expenses of $15,000 are classified as miscellaneous itemized deductionsand will be subject to the 2%-of-AGI floor. Consequently, $1,200 [($42,000 +$18,000) × 2%] of these expenses is disallowed

Other AGI$	$42000
Revenues from hobby	$18000
Less: ExpensesProperty taxes	($3000)
Miscellaneous itemizeddeduction ($15,000 − $1,200)	($13800)
Less: Personal exemption	($4050)
Taxable income	$39150

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Answer 2

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