Problem 7-10

Overview of Deductions and Losses N hopes bit parts in various movies, waiting for her break. What special available for V? 7-9 Performing Artists. V hopes to become a movie star someday. Currently, she acce tax treatment may be ngle, and each earns $30,000 of in- and has $2,000 of deductible expenses for the current year. J's deductions are Given these facts, and assuming that the situation of J and K is identical in every 7-10 Classification of Deductions. J and K are both si for AGI while K's deductions are itemized deductions. a. other respect, will their tax liabilities differ? Explain. Same as (a) except their deductions are $7,000. b. 7-11 Constructive Distributions. D owns all of the stock of DX Inc., which manufactures record jackets. Over the years, the corporation has been very successful. This year D placed his 16- and 14-year-old sons on the payroll, paying them each $10,000 an- nually. The boys worked on the assembly line a couple of hours each week. Explan D's strategy and the risks it involves. 7-12 Disguised Distributions. E owns all of the stock of EZ Inc., which operates a nursery sold During the past several years, the company has operated at a deficit an all of his stock to C. C drew a very low salary before he coul Now the business is highly profitable, and C is paying himself handsomely. adviser, what counsel if any should be given to C? d E finally d turn things around As C's tax 7-13 Income and Expenses of Illegal Business. B is a bookie in a state where gamode is illegal. During the year, he earned $70,000 accepting bets. His expenses i those for rent, phone, and utilities In o dl exgambli