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 $2,614 in self-employment tax on her salon income, with $1,307 representing the employer portion of the self-employment tax. You may also assume that her divorce from Rocky was finalized in 2016. Interest income (not municipal bond) $ 14,665 Salon sales and revenue 88,560 Salaries paid to beauticians 46,440 Beauty salon supplies 23,620 Alimony paid to her ex-husband, Rocky 7,100 Rental revenue from apartment building 35,180 Depreciation on apartment building 14,000 Real estate taxes paid on apartment building 11,980 Real estate taxes paid on personal residence 6,879 Contributions to charity 4,963 a. Determine Betty's AGI. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Betty's AGI $33,558

Explanation:

Betty's AGI:

Revenue from salon $88,560

Salaries paid to beauticians ($46,440)

Nail salon supplies ($23,620)

Salon's operating income $18,500

+

Interest income $14,665

+

Rental revenue from apartment building $35,180

Depreciation on apartment building ($14,400)

Real estate taxes paid on apartment building ($11,980)

Rental income $8,800

-

Alimony paid to her husband $7,100

-

Self-employment tax on salon income $1,307

=

Betty's AGI $33,558

Real estate taxes paid on Betty's house and charitable contributions are itemized deductions (below the line deductions).