Factual Information Grant (age 45) and Bailey Adam (age 44) live in Excelsior Springs, MO Grant is a senior executive with a local school district Bailey provides nursing services as a sole proprietor The Adams have two children, Amy (age 20) and Hannah (age 12) Amy is in the middle of her third year at the University of Kansas Both children qualify as Grant and Baileys federal income tax dependents The Adams plan to file a joint income tax return The Adams provided the following information The Adams current mailing address is 123 Kirkwood, Springfield Missouri 64024 Employment InformationThe W 2 reported Grants taxable compensation and tax withholdings by his employer is provided as a separate document The entire Adam family was covered by minimum essential health insurance during each month in 2020 The insurance was provided by Grants employer Grant Had 162,300 of Wages Tips and other compensation Federal Income Withheld 42000 Social Security Wages 151300 Social Security Taxes Withheld 8537 4 Medicare Wages and Tips 151,300 Medicare Tax Withheld 2193 85 State Income Tax 7100 Bailey received $173,550 in taxable receipts during the year for providing her nursing services Bailey uses the cash method of accounting for her business Not included in the $173,550 are five checks totaling $7,500 that Bailey received from clients before year end but did not deposit the checks until 2021 (the following tax year) During the year, Bailey paid the following expenses related to her nursing services, all of which are generally considered ordinary and necessary and reasonable Rent 12500 Nursing UNiforms and SUpplies 6000 Airfare for Business 1200 Nursing Annual Licensing Fees 500 Fines for Ethical Violations 1500 Hotel (100 business) 1450 meals 2000 Entertainment 2800 Political Candidate COntributions 400 Parking 320 Dry Cleaning For Nursing Uniform 1000 Bailey purchased the following assets for use in her business Asset Date of Purchase Amount Equipment 1 31 20 $22,500 Computers 5 1 20 10,250 Desks 8 2 20 5,100 Office building 10 31 20 50,000 She would like to claim regular depreciation (to the extent permitted) on the assets but does not want to claim the deduction allowed for the purchases under Section 179 or under the bonus depreciation rules She does not have any depreciation expense in the current year from assets purchased in prior years Baileys business activities did not require the filing of any Form 1099s to report payments she made during the tax year Investment Activities The Adams did not own, control or manage any foreign bank accounts, nor were they grantors or beneficiaries of a foreign trust during the tax year The Adams received the following interest and dividends during the year Interest Income Commerce Bank 6000 City of KC, MO Bonds 3600 US Treasuries 2800 Dividend Income Amen Inc 10,000 Ordinary Dividends, 9400 Qualified Dividends Masters Inc 5000 Ordinary 4700 Qualified Tiger company 3500 Ordinary Dividends 3400 Qualified Dividends The Adams sold the following stock during the year Stock Date Purchased Date Sold Amount Realized Tax Basis Dustin, Inc 1 10 2004 9 30 2020 $150,000 $37,500 Augusta Company 2 9 2020 1 15 2020 $25,000 $21,200 Bubba, Inc 2 7 2019 7 8 2020 $12,500 $20,700 Zach Johnson, Inc 11 14 2014 3 1 2020 $20,000 $19,025 The Adams have a $4,000 long term capital loss carryover from the prior tax year Bailey is a 10 owner in a real estate partnership named Double Dipping, LP (EIN 50 7654321) The limited partnership reported ordinary business income for the year, of which $35,000 was Baileys share Bailey received a K 1 from the limited partnership reporting her allocable share of the business income Bailey acquired the interest several years ago Her basis in the limited partnership and at risk amount before considering her 2020 income allocation was $42,000 Bailey is a passive owner with respect to this entity Grant is a 20 owner in Natural Sunshine, Inc (NS) (EIN 24 9876543) NS is a Subchapter S corporation The company reported an ordinary business loss for the year of, which $40,000 was Grants share Grant received a K 1 from NS reporting his allocation of this business loss Grant acquired the stock several years ago His basis in the stock and at risk amount before considering the 2020 loss allocation was $25,000 Grant is a passive owner with respect to this entity Other Income, gains, and losses The Adams sold their home they had lived in for the past fifteen years at the beginning of 2020 They sold the home for $755,000 and their original purchase price was $325,000 The Adams sold land that had been held for investment for $425,000 on March 1, 2020 They originally bought the land for $175,000 on August 1, 1999 The Adams received cash of $100,000 and stock in Alphabet, Inc worth $325,000 Bailey won $15,000 at the casinos but lost $17,500 from online gambling The Adams paid the following personal expenses during the year Contribution to a self employment Retirement Plan 10,000 Dentist Unreimbured by insurance 1500 Doctors (unreimbursed by insurance 21425 Prescriptions (Unreimbursed by insurance) 675 Real Property Taxes on Residence 3525 Vehicle property tax based upon value 1250 Mortgage interest on principal residence 500,000 of acquisition debt 17550 Cash Contribution to United Way (Public Charity) 2000 Cash Contribution to a college (public Charity) 5000 Cash Contribution to the local Catholic Diocese (Public CHarity) 12000 INvestment interest Expense 1500, Credit Card Interest expense for personal Purchases 278 During 2020, the Adams paid a portion of Amys tuition to attend University of Kansas They also purchased Amys school books Amy is a full time student In total, the Adams paid $19,000 for tuition and $2,000 for books Amy used scholarships to pay for the remaining tuition Amy was not required to perform any services as a condition of accepting the scholarship Amy was not employed during the yearIn addition to the amounts withheld by Grants employer, the Adams paid quarterly estimated federal tax payments of $19,000 each for a total of $76,000 for the year They did not pay any state estimated income taxes and did not receive a state income tax refund in 2020 What are the Self Employment Taxes and how does this impact AGI (Please show work) What is the Net Investment Income Tax if any, and if Net Investment Income Tax doesn't apply, why What is the amount of allowed tax credit for each tax credit that can be claimed on their income tax return after application of any limitations or phase out Where do these numbers go on an income tax return Please show work, thank you

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 02, 2024

Factual Information: Grant (age 45) and Bailey Adam (age 44) live in Excelsior Springs, MO. Grant is a senior executive with a local school district.

Factual Information:

Grant (age 45) and Bailey Adam (age 44) live in Excelsior Springs, MO. Grant is a senior executive with a local school district. Bailey provides nursing services as a sole proprietor.

The Adams have two children, Amy (age 20) and Hannah (age 12). Amy is in the middle of her third year at the University of Kansas. Both children qualify as Grant and Baileys federal income tax dependents. The Adams plan to file a joint income tax return. The Adams provided the following information: The Adams current mailing address is 123 Kirkwood, Springfield Missouri 64024.Employment InformationThe W-2 reported Grants taxable compensation and tax withholdings by his employer is provided as a separate document. The entire Adam family was covered by minimum essential health insurance during each month in 2020. The insurance was provided by Grants employer Grant Had 162,300 of Wages Tips and other compensation Federal Income Withheld 42000 Social Security Wages- 151300 Social Security Taxes Withheld- 8537.4 Medicare Wages and Tips- 151,300 Medicare Tax Withheld- 2193.85 State Income Tax 7100 Bailey received $173,550 in taxable receipts during the year for providing her nursing services. Bailey uses the cash method of accounting for her business. Not included in the $173,550 are five checks totaling $7,500 that Bailey received from clients before year-end but did not deposit the checks until 2021 (the following tax year). During the year, Bailey paid the following expenses related to her nursing services, all of which are generally considered ordinary and necessary and reasonable

Rent: 12500; Nursing UNiforms and SUpplies: 6000; Airfare for Business 1200; Nursing Annual Licensing Fees 500; Fines for Ethical Violations 1500 ; Hotel (100% business) 1450 ; meals 2000 ; Entertainment 2800 ; Political Candidate COntributions 400 ; Parking 320 ; Dry Cleaning For Nursing Uniform 1000

Bailey purchased the following assets for use in her business.

Asset	Date of Purchase	Amount
Equipment	1/31/20	$22,500
Computers	5/1/20	10,250
Desks	8/2/20	5,100
Office building	10/31/20	50,000

She would like to claim regular depreciation (to the extent permitted) on the assets but does not want to claim the deduction allowed for the purchases under Section 179 or under the bonus depreciation rules. She does not have any depreciation expense in the current year from assets purchased in prior years.

Baileys business activities did not require the filing of any Form 1099s to report payments she made during the tax year.

Investment Activities

The Adams did not own, control or manage any foreign bank accounts, nor were they grantors or beneficiaries of a foreign trust during the tax year.

The Adams received the following interest and dividends during the year.

Interest Income: Commerce Bank 6000 ; City of KC, MO Bonds 3600 ; US Treasuries 2800

Dividend Income Amen Inc 10,000 Ordinary Dividends, 9400 Qualified Dividends; Masters Inc 5000 Ordinary 4700 Qualified ; Tiger company 3500 Ordinary Dividends 3400 Qualified Dividends

The Adams sold the following stock during the year.

Stock	Date Purchased	Date Sold	Amount Realized	Tax Basis
Dustin, Inc.	1/10/2004	9/30/2020	$150,000	$37,500
Augusta Company	2/9/2020	1/15/2020	$25,000	$21,200
Bubba, Inc.	2/7/2019	7/8/2020	$12,500	$20,700
Zach Johnson, Inc.	11/14/2014	3/1/2020	$20,000	$19,025

The Adams have a $4,000 long-term capital loss carryover from the prior tax year. Bailey is a 10% owner in a real estate partnership named Double-Dipping, LP (EIN 50-7654321). The limited partnership reported ordinary business income for the year, of which $35,000 was Baileys share. Bailey received a K-1 from the limited partnership reporting her allocable share of the business income. Bailey acquired the interest several years ago. Her basis in the limited partnership and at-risk amount before considering her 2020 income allocation was $42,000. Bailey is a passive owner with respect to this entity. Grant is a 20% owner in Natural Sunshine, Inc. (NS) (EIN 24-9876543). NS is a Subchapter S corporation. The company reported an ordinary business loss for the year of, which $40,000 was Grants share. Grant received a K-1 from NS reporting his allocation of this business loss. Grant acquired the stock several years ago. His basis in the stock and at-risk amount before considering the 2020 loss allocation was $25,000. Grant is a passive owner with respect to this entity.

Other Income, gains, and losses

The Adams sold their home they had lived in for the past fifteen years at the beginning of 2020. They sold the home for $755,000 and their original purchase price was $325,000. The Adams sold land that had been held for investment for $425,000 on March 1, 2020. They originally bought the land for $175,000 on August 1, 1999. The Adams received cash of $100,000 and stock in Alphabet, Inc. worth $325,000. Bailey won $15,000 at the casinos but lost $17,500 from online gambling.

The Adams paid the following personal expenses during the year:

Contribution to a self employment Retirement Plan 10,000 ; Dentist Unreimbured by insurance 1500; Doctors (unreimbursed by insurance 21425; Prescriptions (Unreimbursed by insurance) 675; Real Property Taxes on Residence 3525; Vehicle property tax based upon value 1250; Mortgage interest on principal residence 500,000 of acquisition debt 17550; Cash Contribution to United Way (Public Charity) 2000; Cash Contribution to a college (public Charity) 5000; Cash Contribution to the local Catholic Diocese (Public CHarity) 12000; INvestment interest Expense 1500, Credit Card Interest expense for personal Purchases 278

During 2020, the Adams paid a portion of Amys tuition to attend University of Kansas. They also purchased Amys school books. Amy is a full-time student. In total, the Adams paid $19,000 for tuition and $2,000 for books. Amy used scholarships to pay for the remaining tuition. Amy was not required to perform any services as a condition of accepting the scholarship. Amy was not employed during the yearIn addition to the amounts withheld by Grants employer, the Adams paid quarterly estimated federal tax payments of $19,000 each for a total of $76,000 for the year. They did not pay any state estimated income taxes and did not receive a state income tax refund in 2020.

What are the Self Employment Taxes and how does this impact AGI (Please show work)

What is the Net Investment Income Tax if any, and if Net Investment Income Tax doesn't apply, why?

What is the amount of allowed tax credit for each tax credit that can be claimed on their income tax return after application of any limitations or phase out

Where do these numbers go on an income tax return

Please show work, thank you!