Using the following facts, answer the questions below concerning Jaron’s 2016 tax liability.
1. Two years ago, in November 2014, when his wife died, Jaron left the CPA firm he was working for and started his own practice so he could have more time to spend with his four children. Jaron’s children are 14, 16, 19, and 24 years old, respectively. The three youngest live at home with their father. Danny, Jaron’s 19-year-old son, graduated from high school a year ago and is currently working at a local golf course. Danny earned $17,000 in the current year. Jaron’s oldest daughter, Laura, is married and lives in town with her husband, Chad. Laura graduated from college two years ago and now works for a local advertising agency. What are Jaron’s filing status and personal and dependency exemptions for 2016?
2. Jaron rents a small office downtown where he meets with clients and conducts business while his children are at school. He keeps all his client files and business records in this office. In the evening, he uses a converted bedroom in his home as his office. The following expenses are allocated to his home office (by square feet):
a. Depreciation $2,150
b. Taxes $1,500
c. Utilities $75
Can Jaron claim a deduction for his home office?
3. Jaron owns a condominium downtown. He rented it out 270 days during the year. He also allowed Laura and her husband to stay in the home rent-free for 24 days while they were looking for a place to stay. Fortunately, the condominium wasn’t rented during the time they needed it. The following items of annual income and expense relate to the condominium:
a. Rental income $18,000
b. Interest $3,150
c. Taxes $1,700
d. Other expenses $6,000
e. Depreciation $7,090
What is the tax treatment of the condominium for Jaron in 2016?
4. On April 6, Jaron sold a parcel of land he had held for investment to a real estate development firm for $75,000. He purchased the land three years earlier from his brother for $70,000. His brother had originally purchased the land for $74,000. What is the amount and character of Jaron’s gain or loss on the sale of the land?
5. On May 1, Jaron purchased 1,000 shares in Genomics Ltd. for $10 per share. In December he was forced to sell all 1,000 shares at $8 per share to avoid a conflict of interest. What is the amount and character of Jaron’s gain or loss on the sale of the stock?
6. Jaron reported the following items of income and expense from his consulting practice:
a. Consulting fees received $185,000
b. Wages expense $47,400
c. Rent expense $20,000
d. Depreciation $2,100
e. Other expenses $17,000
What is Jaron’s net income from his consulting practice?
7. Calculate Jaron’s 2016 income tax liability. Ignore any available credits and self employment taxes and assume the standard deduction exceeds any itemized deductions Jaron has.