Jeremy and Alyssa Johnson have been married for five years and do not have any c

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Jeremy and Alyssa Johnson have been married for five years and do not have any children. Jeremy was married previously and has one child from the prior marriage. He is self-employed and operates his own computer repair store. For the first two months of thee year, Alyssa worked for Office Depot as an employee. In March, Alyssa accepted a new job with Super Toys Inc. (ST), where she worked for the remainder of the year. This year, the Johnsons received $255,000 of gross income. Determine the Johnsons' AGI given the following information (assume the 2016 rules apply for purposes of the qualified education expense deduction) a. Expenses associated with Jeremy's store include $40,000 in salary (and employment taxes) to employees, $45,000 of supplies, b. Alyssa contributed $5,000 to a regular IRA. She did not participate in an employer-provided retirement plan. Jeremy currently is c. The Johnsons own a piece of raw land held as an investment. They paid $500 of real property taxes on the property and they d. The Johnsons own a rental home. They incurred $8,500 of expenses associated with the property and $18,000 in rent and other administrative expenses. not saving for his retirement. incurred 200 of expenses in travel costs to see the property and to evaluate other similar potential investment properties. e. The Johnsons' home was only five miles from the Office Depot store where Alyssa worked in January and February. The ST store was 60 miles from their home, so the Johnsons decided to move to make the commute easier for Alyssa. The Johnsons' new home was only 10 miles from the ST store. However, their new home was 50 miles from their former residence. The Johnsons paid a moving company $2,002 to move their possessions to the new location. They also drove the 50 miles to their new residence They stopped along the way for lunch and spent $60 eating at Denny's. None of the moving expenses were reimbursed by ST f. Jeremy paid $4,500 for health insurance coverage for himself (not through an exchange). Alyssa was covered by health plans provided by her employer, but Jeremy is not eligible for the plan until next year g. Jeremy paid $2,500 in self-employment taxes ($1,250 represents the employer portion of the self-employment taxes) h. Jeremy paid $5,000 in alimony and $3,000 in child support from his prior marriage i. Alyssa paid $3,100 of tuition and fees to attend night classes at a local university. The Johnsons would like to deduct as much of this expenditure as possible rather than claim a credit. (Round intermediate calculations to the nearest whole dollar amount.) AGI

Explanation / Answer

NOTE :

A qualifying education expenses are deductible up to a maximum of $4000. Since the Johnson's modified AGI is less than $130000, the Johnson's are allowed to deduct the less of their actual qualified expenditures of $3100 or $4000.

Johnson's AGI Description Amount Explanation Gross income 255000 a Ordinary and necessary business expenses 103000 Ordinary expenses associated with Jeremy's business b Regular IRA - Contribution limit provided is $5500. d Rental expenses 8500 Rental expenses are deductible for AGI even though they are technically investment or ''production of income expenses'' c Real property taxes and investment expenses - Taxes and investment expenses are deductible from AGI not for AGI e Moving expenses 2010 Her old residence to the new place of employment is more than 50 miles father than her old residence to her old place of employment (60-5=55). The location of her new residence is irrelevant. The Johnson's are allowed to deduct costs of moving [2002 movers including 16.5 cents a mile for driving themselves (50*16.5c=$8)] . Meals are an indirect cost of moving and are not deductible. f Self employed health insurance 4500 Jeremy may deduct all the costs of his health insurance because he is not eligible for ST's health plan. g Self employment taxes 1250 1/2 of self employment taxes allowed as for AGI deduction h Alimony 5000 Contribution to retirement paln deducted for AGI i Education expenses 3100 Alimony allowed as for AGI deduction ; SEE NOTE A BELOW Total of AGI deductions 131360 AGI $127640 AGI

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