John Paynotax, age 50, and Mary Paynotax, age 49, are doing their 2020 income tax return. John
Question:
John Paynotax, age 50, and Mary Paynotax, age 49, are doing their 2020 income tax return. John is a self-employed attorney and Mary is not employed.
They have three children:
Sarah, Paynotax, age 19 who is in college (2nd year)
Amy Paynotax, age 16 who is in High school (2st year)
Douglas Paynotax age 14
John has taxable interest income of $12,000.00 from various CDs at local banks.
$3,000.00 from M&T
$6.000.00 from Berkshire Bank
$3,000.00 from Key Bank
John received a life insurance benefit of $10,000.00 from his father's life insurance
policy. His father died in 2020. John also had an IRA distribution of $500.00 from an inherited
IRA from his father.
John materially participated in a business in 2020 and had gross receipts (income from
the business) in the amount of $301,000.00. He also gave a refund to a client in 2020 for
$1,000.00. He uses the cash method for accounting purposes. He did not sell any goods. He has to pay self-employment tax.
He had the following expenses:
Advertising: $900.00
Insurance: $4,000.00
Office Expense: $5,000.00
Repairs/Maintenance: $14,000.00
Supplies: $2,000.00
Utilities: $3,000.00
He utilized his car for the business and traveled $12,000.00 miles. He used it for personal use as well. John and Mary have another vehicle for personal use in 2020. They sold that vehicle for $3,000.00 in 2020. They paid $15,000.00 for it used in 2017. He also had taxes on his office building where he works from 2020 for the sum of $8,000.00
John cashed in Pony Express Stock that he purchased on June 1, 2019 for $10,000.00 and sold it for $15,000.00 on March 31, 2020. There are no adjustments. He had a Tractor (John Deere) he bought on July 5, 2019 for $5,000.00 and sold it on March 31, 2020 for $3,000.00.
John tells you that he and Mary have itemized deductions in the amount of $10,000.00 each for 2020. He doesn't know whether to take the standard deduction for 2020. John has a high deductible health insurance policy (family plan) and contributed $8,100.00 to an HA in 2020. He had $7,500.00 in qualified medical expenses (distributions).
John and Mary live at 40 Depreciation Bld from May of 2020 forward. Prior to that they lived at 20 Alimony Drive since April of 2016. There was a period of time in 2018 that they rented an apartment in Atlanta near to a specialized hospital and stayed there for 8 months due to health concerns for Mary. John and Mary sold the Alimony Drive property for $600,000 in 2020. They paid $90,000.00 for it in 2006. They put an addition on it in 2017 for $50,000.00 and paid a real estate agent $36,000.00 in fees when they sold it.
calculate the taxable income.
Expert Answer:
Taxable income From local banks 12000 Income from business 301000 returned to the clie... View the full answer
