Accounting

Question

Filing Status Deduction* Basic Standard Deduction** Additional Standard     Social Security Base Amounts
Married Joint                          $12,400                      $1,200                           $32,000\$44,000
Single                                  6,200                            1,550                           $25,000\$34,000
Head of Household               9100                            1550                          $25,000\$34,000

*Special rules if claimed on someone else’s tax return
**Blind taxpayer, taxpayer 65 or older
Self employment taxes are assessed at 15.35% of net* self-employment income below $117,000 and at 2.9% on the excess. *net=92.35% of the amount reported. Note that the $117,000 amount is reduced by wages paid. Salary does not reduce the 2.9% tax
Tax rate on qualified dividents
• 0%--MTR 10% or 15%
• 15%--MTR between 25% and 35%
• 20%--MTR=39.6%

 

 

 

3. Fred, who files as head of household generated wages and income/expenses from a hobby as follows:

Year Wages Activity Income Activity Expenses Kind of expense
2014 80,000 25,000 38,000 Management Fee
2015 280,000 20,000 30,000 Management Fee
How much of the expenses (after all limitations) can be deducted ? OA can be used in full in year paid.

In 2015 FOR AGI________ From AGI____________ Carryover_________

Answer 1

2015--- 280,000 wages + 20,000 hobby income - $30,000 management fee expense. For income tax purposes, deductible hobby expenses cannot exceed hobby income, therefore no loss on the tax return, and there is no carryover from 2014. AGI is $280,000. I believe that Fred would be better off conducting his hobby as a business.