Question

Through November, Cameron has received gross income of $120,000. For December, Cameron is considering whether to accept one more work engagements for the year. Engagement 2 will generate $7,000 of revenue at a cost to Cameron of $3,000, which is deductible for AGI. In contrast, engagement 2 will generate $5,000 of qualified business income (QBI) which is eligible for the 20% QBI deduction. Cameron files as a single taxpayer.

Calculate Cameron’s taxable income assuming he chooses engagement 1 and assuming he chooses engagement 2. Assume he has no itemized deductions.

Answer 1

Cameron’s taxable income = $111800

Step-by-step explanation:

From the information given:

Cameron's taxable income can be computed as follows:

Description Engagement 1 Engagement 2

Gross Income before new - $120000 $120000

work engagement

Income from engagement (ad $7000 $5000

Additional for AGI deduction (less) $3000 -

Adjusted Gross Income $124000 $125000

Greater of itemized /Standard

Deduction (less) $12,200 $12,200

Deduction of QBI (5000×20%) - $1000

Taxable Income $111800 $111800

The Taxable income is calculated according to 2019 limit