Question

James and Molly are married couples, both 62 years old and both retired from their respective...

James and Molly are married couples, both 62 years old and both retired from their respective companies last year. Both James and Molly rolled their employer retirement accounts over into self-directed individual retirement accounts. James is starting withdrawals from his account this year. They are planning to hold off on withdrawals from Molly's account until the required age of 701/2. Their daughter jane has a child, a three year-old named Nancy. Molly and her husband are in the 25% tax bracket. When Nancy was born, the Powers set up a Crummey trust for her, which they funded with a tax-exempt joint gift of $20,000 and a subsequent gift of $8,000 the following year. After spending the last six months traveling around Europe and the Caribbean, the Powers would like to settle down and establish a counseling service for high school students planning to enter college and for college students looking forward to entering the job market. They have discussed this with another couple with similar interests and backgrounds and jointly feel there is a large potential market in their metropolitan area. Net annual income from the counseling service is estimated at $60,000. The Powers own their own home and a hillside vacation lodge in Vermont. The use the lodge infrequently, no more than a week or ten days per year, and manage the rental and maintenance of the property themselves. The Powers are interested in getting into their own business, having significant income, and in minimizing their tax burden. Their anticipated financial information for 2017 is as follows: Salary $ 0 Taxable interest income 6,800 Tax-exempt interest 2,200 Dividend income 16,000 fame's IRA distribution 48,000 Rental income from lodge 3,300 Long-term capital gain 3,800 Short-term capital gain 1,260 Loss from oil and gas working interest 1,020 Lucy's trust income 2,100 Medical and dental expense 3,200 State and local income taxes 1,200 Real estate taxes (home) 2,300 Real estate taxes (lodge) 600 Mortgage interest (home) 7,000 Rental costs (lodge) 910 Carryover long-term capital 680 Gifts to charity 2,940

Which of the following amounts is the Powers' taxable income? (MUST SOW ALL CALCULATIONS)

A. $54,610 B. $55,650 C. $58,560 D. $62,510 E. $68,050

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Answer #1

Computation of Gross, Adjusted Gross and Taxable Income,

Particulars Amount, $

Taxable interest income 6800

Tax-exempt interest 2200

Dividend income 16000

fame's IRA distribution 48000

Rental income from lodge 3300

Long-term capital gain 3800

Short-term capital Gain 1260

Loss from oil and gas working interest 1020

Lucy's trust income 2100

Medical and dental expense 3200

State and local income taxes 1200

Real estate taxes (home) 2300

Real estate taxes (lodge) 600

Mortgage interest (home) 7000

Rental costs (lodge) 910

Carryover long-term capital 680

Gifts to charity

A. Taxable Income:

Adjusted Gross Income 74650

State and local income taxes 1200

Real estate taxes (home) 2300

Real estate taxes (lodge) 600

Mortgage interest (home) 7000

Carryover long-term capital 680

Loss from oil and gas working interest 1020

Tax-exempt interest.

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