Question

Betty operates a beauty salon as a sole proprietorship. Betty also owns and rents an apartment building. This year Betty had the following income and expenses.

You may assume that Betty will owe $2,502 in self-employment tax on her salon income.
Interest income $11,255
Salon sales and revenue 86,360
Salaries paid to beauticians 45,250
Beauty salon supplies 23,400
Alimony paid to her ex-husband, Rocky 6,000
Rental revenue from apartment building 31,220
Depreciation on apartment building 12,900
Real estate taxes paid on apartment building 11,100
Real estate taxes paid on personal residence 6,241
Contributions to charity 4,237


You may assume that Betty will owe $2,576 in self-employment tax on her salon income, with $1,288 representing the employer portion of the self-employment tax. You may also assume that her divorce from Rocky was finalized in 2016.

Required:
Determine Betty's taxable income to file 1040.

Answer 1

Step-by-step explanation:

Interest income - 11,255

Income from self Employment

Salon sales and revenue - 86,360

Beauticians salary - 45,250

Salon supplies 23,400

Total (68650)

Salon income 17,710

Income from rental activities

Rental revenue - 31,220

Depreciation on building 12,900

Real estate taxes 11,100

Total expenses (24,000)

Rental income 7,220

Taxable income calculation

Interest income - 11,255

Salon income 17,710

Rental income 7,220

Total income 36,185

Adjustment

Alimony paid (6000)

1/2 of self employment tax on income (2502/2) (1251)

Total (7251)

Adjusted income 28,934

Less standard deduction (12,000)

Taxable income - 16,934