Question

For the current year, Susan had salary income of $20,000. In addition, she reported the following capital transactions during the year: Long-term capital gain $7,000 Short-term capital gain 3,000 Long-term capital loss (2,000) Short-term capital loss (5,000) There were no other items includable in her gross income. What is the amount of her adjusted gross income for the current year

Answer 1

Adjusted gross income = $23000

Step-by-step explanation:

Before determining the adjusted gross income, we need to understand what gross income is and what forms part of gross income. Gross income is total amount of income from various sources minus/plus and additions and deductions. Income from salary is earned in the ordinary course of work/business which is definitely part of gross income. Capital gain is refers to gain/profit/income from sale of capital assets such as property, shares, stocks, piece of land. Any gains and losses form part of gross income and capital losses are reported as deductions meant to reduce investors tax liability just as capital gains should be taxed. The adjusted gross income for the current year is as follows:

Gross income = salary income + capital gain - short-term & long-term capital losses

Gross income = $20000 + $7000 + $3000 - $2000 - $5000

Gross income = $23000