Calculation of Tax: Practice Problem

Married couple Barney and Betty Rubble have the following activity in 2014:

Barney’s Salary Income at Quarry, Inc. 60,000

Dividend Income 5,000
Betty’s Cooking Activity
Cooking Income 6,000
Cooking Expenses 16,000
Betty received alimony from former spouse 10,000
Betty received child support from a former spouse 13,000
Value of a car Betty won on a game show 17,500
Home office expense by Barney because he used
a room in his house for the convenience of employer 2,000
Student loan interest paid by Barney 6,000
Loss due to a theft of property in home 9,000
Qualified medical expenses due to Betty’s bad back 11,000
Home mortgage interest expense 12,000
Cash charitable contributions 50,000
Investment interest expense 8,000
State income taxes 3,000
Property taxes 4,000
Tax preparation fees 5,000
Standard deduction 7,600
Personal exemption, per person 2,000

Question A

Calculate taxable income assuming Betty’s cooking activity is engaged in for profit

Question B

Calculate taxable income assuming Betty’s cooking activity is NOT engaged in for profit