Question

During 2019, Marvin had the following transactions:

Salary
$50,000

Bank loan (proceeds used to buy personal auto)
10,000

Alimony paid (divorce was finalized in 2010).
12,000

Child support paid
6,000

Gift from aunt
20,000

Marvin's AGI is:


a) $32,000.

b) $38,000.

c) $44,000.

d) $56,000.

e) $64,000.

Answer 1

Marvin's AGI is calculated by subtracting the deductible alimony from his salary, resulting in an AGI of $38,000 for the year 2019.

Step-by-step explanation:

To calculate Marvin's adjusted gross income (AGI) for 2019 from the provided transactions, we need to consider which items are taxable and which ones are not. Marvin's salary of $50,000 is fully taxable. The bank loan is not taxable because it is a loan and must be paid back; hence, it doesn't add to his taxable income. While alimony paid is no longer deductible for divorces finalized after 2018, Marvin's divorce was finalized in 2010, so his alimony payments of $12,000 are deductible from his income. Child support paid is not deductible and, therefore, not an adjustment to income. Gifts received for personal reasons, such as the $20,000 gift from his aunt, are not considered taxable income. So Marvin's AGI would be his salary minus the deductible alimony, which equals $38,000 ($50,000 - $12,000). Therefore, the correct answer is (b) $38,000.