David, a lawyer (age 65), is married and files a joint return. His spouse, Susan, is also 65 years of age. During the current year he engages in the following activities and transactions:
a. eing an avid fisherman, David develops an expertise in tying flies. At times during the year, he is asked to conduct fly-tying demonstrations, for which he is paid a small fee. He also periodically sells flies that he makes. Income generated from these activities during the year is $2,500. The expenses for the year associated with David's fly-tying activity include $125 personal property taxes on a small trailer that he uses exclusively for this purpose, $2,900 in supplies, $270 in repairs on the trailer, and $200 in gasoline for traveling to demonstrations. (Do not consider David's fly tying activities as a hobby).
b. David sells a small building lot to his brother for $40,000. David purchased the lot four years ago for $47,000, hoping to make a profit.
c. Susan enters into the following stock transactions: (None of the stock qualifies as small business stock).
DATE TRANSACTION
March 22 Purchases 100 shares of Silver Corporation common stock for $2,800.
April 5 Sells 200 shares of Gold Corporation common stock for $8,000. The stock was originally purchased two years ago for $5,000
April 15 Sells 200 shares of Silver Corporation common stock for $5,400. The stock was originally purchased three years ago for $9,400.
May 20 Sells 100 shares of United Corporation common stock for $12,000. The stock was originally purchased five years ago for $10,000.
d. David's salary for the year is $370,695. It is decided that the standard deduction will be used.
Answer the following questions regarding David's activities for the year.
1. Compute their taxable income for the year.
2. What is Susan's basis in the Silver stock she continues to own?