Mr. Monk is a self-employed computer consultant who earns over $100,000 each year. He also is an enthusiastic artist. This year, he spent $4,900 on oil paints, canvasses, supplies, and lessons at a local studio. Mr. Monk made several trips to the National Gallery in Washington, D.C., to attend lectures on painting technique. His total travel costs were $3,350. Compute the effect on Mr. Monk’s AGI and taxable income of his painting revenue and expenses under each of the following assumptions:
a. Mr. Monk earned $13,290 from sales of his paintings. This was the sixth consecutive year that the painting activity generated a profit.
b. Mr. Monk earned $2,000 from sales of his paintings. The painting activity has never generated a profit.
c. Mr. Monk earned $2,000 from sales of his paintings. The painting activity also generated a net loss four years ago, but was profitable in each of the past three years.