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2021.10.24 Sunday

Problem 7-44 (LO. 7) Xinran, who is married and files a joint return, owns a grocery store. In 2020, his gross sales were $276,000, and his operating expenses were $320,000. Other items on his 2020 return were as follows: $20,000 Nonbusiness capital gains (short-term) Nonbusiness capital losses (long-term) Itemized deductions 9,000 18,000 Ordinary nonbusiness income 8,000 Salary from part-time job 10,000 In 2021, Xinran provides the following information: $60,000 Net business income Salary (spouse) Interest income 25,000 2,000 Adjusted gross income $87,000 Less: Itemized deductions* $35,000 Charitable contributions (cash) of $35,000, (limited to 60% of AGI) Medical expenses of $9,100, [limited to the amount in excess of 10% of AGI ($9,100 - $8,700)] Total itemized deductions 400 $35,400 The 2020 married filing jointly standard deduction is $24,800; Xinran's itemized deductions will exceed the 2021 standard deduction (after adjustment for inflation). Assume that the medical expense AGI floor is 10% in 2021 (it was 7.5% for 2017 through 2020). Enter all amounts as positive numbers. However, use the minus sign to indicate a loss. If an amount is zero, enter "O". a. Compute Xinran's taxable income (or loss) for 2020? 2020 Net business income/loss from grocery store -44,000 Salary 10,000 Ordinary nonbusiness income 8,000 Net short-term capital gain 11,000 Adjusted gross income/loss -15,000 Less: MF) standard deduction 24,800 Less: Deduction for qualified business income 0 Loss b. Compute Xinran's NOL for 2020. -34,000 Feedback Check My Work Correct c. Determine Xinran's taxable income for 2021. 2021 (1) Determine taxable income before application of the NOL: Net business income $ 60,000 Salary 25,000 Interest income 2,000 Adjusted gross income 87,000 Less: Itemized deductions: 35,400 Less: Deduction for qualified business income: Grocery store II Taxable income (2) Determine the NOL deduction: 1. The NOL carryforward s or 2. 80% of taxable income computed in step 1: $ (3) Determine final taxable income: Net business income Salary Interest income NOL deduction $ Adjusted gross income Less: Itemized deductions II I IIlll Charitable contributions s Medical expenses Less: Deduction for qualified business income: Grocery store Taxable income