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Barry, 53, and Vera, 49, are married and are the parents of 22-year-old Julia, 20-year-old Gary, and three-year-old twins, Larry and Laura. They have provided the following information for 2014: ?Barr

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Barry, 53, and Vera, 49, are married andare the parentsof22-year-old Julia,20-year-old Gary,and three-year-old twins,Larry and Laura. Theyhave provided the following information for 2014: Barry is a popular television weatherman. Heearns a salary of $250,000 per year. In2014, his employer withheld $46,000 in federal taxes and $11,000 in state income taxes.Barryis anactive participantin his employer-sponsored pensionplan. Barry builds upscale dog beds in his spare time. He started out building them for his own dogs, and then his friends wanted to buy them. He sells them online now. He finds...

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Barry, 53, and Vera, 49, are married andare the parentsof22-year-old Julia,20-year-old Gary,and three-year-old twins,Larry and Laura. Theyhave provided the following information for 2014: Barry is a popular television weatherman. Heearns a salary of $250,000 per year. In2014, his employer withheld $46,000 in federal taxes and $11,000 in state income taxes.Barryis anactive participantin his employer-sponsored pensionplan. Barry builds upscale dog beds in his spare time. He started out building them for his own dogs, and then his friends wanted to buy them. He sells them online now. He finds building the dog beds relaxing. He has not made any profit over the years doing this—he just finds it enjoyable. He will probably pursue it to a greater extent when he retires. In 2014, he had sales of $35,000 and incurred the following expenses: Materials and supplies $23,800 Shipping costs 6,500 Workshop rental 7,200 Website maintenance and promotional costs 1,500 Vera has just started a new career as a retirement coach. Her business is unincorporated. She earned gross revenues of $27,500 and incurred the following expenses: Office rent $12,000 Trade journal subscriptions 300 Advertising 2,000 Supplies 1,500 Professional development courses 900 Seminar costs 2,400* Donation to her mother’s campaign to run for governor 30,000 *These costs were incurred for two seminars that Vera held at retirement fairs. Laura has a speech defect for which her doctor referred her to a speech therapist. The therapist was paid $15,000 and these costs were not covered by insurance. During the year, Barry and Vera paid $9,000 in health insurance premiums and $800 in dental insurance premiums. Vera paid $5,500 for cataract surgery and Barry paid $7,500 for Botox injections and laser treatments to maintain his television image. Vera paid $3,000 for a dental implant. Her dental plan reimbursed her $2,200. Barry paid $6,500 tothe veterinarian forcancer treatments for one of his dogs. Vera received a $125,000 cash inheritance from her late uncle. At the endof the year, Barry sold his shares inShanna Ltd. for $9,000. He had purchased the shares 11months earlier for $3,500. Around the same time, Vera sold her shares ofKnoll Co. for $3,600. Shehad purchased the stock threeyears earlier for $14,900. Barry and Vera went to Reno for aweekend getaway. Barry won $35,000 playing poker, and Veralost $10,000 at blackjack. Barry and Vera have a vacation home in Florida. During 2014, they used the vacation home for 30 days and rented it out for 200 days. The home stood empty for the rest of the year. They received $40,000 of rental revenue and incurred the following expenses: Mortgage interest $18,000 Property taxes 4,500 Utilities 4,800 Repairs and maintenance 3,900 Insurance 2,100 Advertising 1,000 Depreciation (maximum available) 13,900 As in the past, they will use the IRS method to allocate expenses. Barry and Vera also received the following in 2014: Dividends from Kate Corp. $6,000 Interest from a savings account 2,700 Interest from City ofPortland bonds 15,800 Barry and Vera paid the following in 2014: Property taxes on house $16,700 Credit card interest 2,300 Donations to church 3,600 State sales taxes 5,500 Julia is a full-time studentat DayeCollege. She received ascholarship that covered allher tuition, books,andsupplies. Her parents pay for her room and board andmiscellaneous living expenses. Tosave money,Julia moves back to her parents’ houseduring her summer breaks. In 2014, she earned $6,000 from her summerjob. Shehas saved $4,000 ofit for a new car and has spent the rest on clothes and entertainment. Gary is taking two night courses at thelocal community college. He does not know whatkind of career he wants and is trying to “find himself.” Inthe meantime, he lives in an apartment with his cousin andhis parents are happy tosupport him while he looks for himself. On occasion, he works for a moving company whenitneeds extra hands. In2014, he earned $4,000 doing this. Barry and Vera plan tofilea joint return, as usual. Required: Calculate Barry andVera’sAGI and taxable income.Ignoreany self- employmenttaxes.For items that you have not included, explain why they havenotbeenincluded. b. Both Barry and Vera want to makecontributions toIRAs.Advise them as to what type ofIRAs theyare eligibleto contribute to and the maximum amount, ifany, that eachof them may contribute. Question 6 (20 marks) Kyle Kincaid is the soleproprietor of Kyle’s Cookies Plus. For 2014,Kyle provided the following information: Sales $1,500,000 Cost ofgoods sold 847,300 Interest expense onbusiness loan 11,500 Transportation expense 28,700 Licenses and permits 3,800 Utilities 9,700 Wages for part- and full-time staff 297,600 Advertising 150,000 Supplies 4,900 Kyle started operations in 2013. Hehas acquired the following assets: Acquisition Date Asset* Cost RecoveryPeriod April 1, 2013 refrigeration unit (used) $ 15,000 3 years May 1,2013 integrated cookie machine (new) 300,000 10 years May 15, 2013 packing machine (used) 95,000 7 years January 2,2014 building (new) 750,000 January 2,2014 land 50,000 April 15, 2014 adaptor set for cookie machine (new) 40,000 5 years October 16, 2014 pastry machine (new) 325,000 10 years December 3, 2014 freezer (used) 50,000 7 years In 2013, Kyle did not electinto Section 179 and did not opt out of bonus depreciation. For 2014, Kyle wants to minimize taxes and will take the necessary elections. Kyle did not payhimself a salary. Kyle’s wife, Carly, earned $60,000 in salary and commissions fromher sales job. Heremployer withheld $2,700 in state income taxes and $8,900 infederalincome taxes. Kyle andCarly received$15,200 individends from Atlantic Peach Co. and $23,800 in interest from municipal bonds.They made the following expenditures: Medical bills for their infant daughter $43,000 Property taxes 7,600 State income taxinstallments paid 5,500 Federal taxinstallments paid 17,600 Charitable contributions 1,500 Carlyis thesole supporter of her elderlyauntwho lives ina nearby nursing home. Required: Kyle and Carly want to minimize their taxes. Calculate their taxable income or loss for tax purposes. Forthis calculation,ignoreany self-employment taxes. Be sure to show all your work.

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Answer 1
a. Calculation of AGI and Taxable Income
Income from Employment $250,000
Vera – Business Income $10800
Other Income - Income from Barry’s Hobby $35000
Income from Poker $35000
Loss from rental property ($8200)

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