Samantha, an executive, has AGI of $100,000 before considering income or loss from her miniature horse business. Her outside income comes from prizes for winning horse shows, stud fees, and sales of yearlings. Samantha's home is on 20 acres, half of which she uses for the horse activity (i.e., stables, paddocks, fences, tack houses, and other related improvements).

Samantha's office in her home is 10% of the square footage of the house. She uses the office exclusively for maintaining files and records on the horse activities. Her books show the following income and expenses for the current year:

Income from fees, prizes, and sales				$22,000
Expenses
	Entry fees			1,000
	Feed and veterinary bills			4,000
	Supplies			900
	Publications and dues			500
	Travel to horse shows (no meals)			2,300
	Salaries and wages of employees			8,000
	Depreciation
		Horse equipment	$3,000
		Horse farm improvements	7,000
		On 10% of personal residence	1,000	11,000
	Total home mortgage interest			24,000
	Total property taxes on home			2,200
	Total property taxes on horse farm improvements			800

The mortgage interest is only on her home because the horse farm improvements are not mortgaged.

If an amount is zero, enter "0".

a. What are Samantha's tax consequences if the miniature horse activity is a hobby? Samantha reports net income from the activity of $. The gross income is reported as an amount for AGI and the expenses are reported as itemized deductions . The overall tax effect (after any limitations and any expenses deductible whether a hobby or a business) is a net increase in taxable income of $.

b. What are Samantha's tax consequences if the miniature horse activity is a business? Samantha reports a net loss from the activity of $ which is reported as amount for AGI . The overall tax effect (after any limitations and any expenses deductible whether a hobby or a business) is a net decrease in taxable income of $.