John and Alice James have been married for five years and do not have any children. John is self-employed and operates his own computer repair store. For the first two months of the year, Alice worked for Office Depot as an employee. In March, Alice accepted a new job with Super Toys Inc. where she worked for the remainder of the year. This year, the James received $255,000. Determine James’ AGI give the following:
Expenses associated with John’s store include $40,000 in salary to employees, $45,000 of supplies and $18,000 in rent and other administrative expenses.
Alice contributed $5,000 to a regular IRA. She did not participate in an employer – provided retirement plan.
The James own a piece of raw land held as an investment. They paid $500 of real property taxes on the property and they incurred $200 of expenses in travel costs to see the property and evaluate other investment opportunities.
The James own a rental home. They incurred $8,500 general rental expenses on the property. Rental income was $12,000 and the property was placed in service on May 2, 2014 at a cost basis of $350,000.
John paid $4,500 for health insurance coverage for himself. Alice was covered by health plans provided by her employer.
John had $2,500 in Self-employment tax (1/2 represents the employer portion).
John has alimony paid of $5,000 and child support $3,000 paid to his wife from a prior marriage.
Alice paid $3,500 of tuition and fees to attend night classes at a university.
Of the $255,000 in gross income, $50,000 was from a law suit (22,000 personal injury damages and 28,000 punitive damages)
In addition, to the $255,000 of gross income the James cashed in US Savings bonds having interest of $2,600.