Reference no: EM132164092

Question 1 - Larry's part-time job at the car wash pays him an annual wage of $25,000. To supplement this income Larry started a new business catering on January 1, 2017. Larry is a 26-year-old, single, cash taxpayer who lives in Columbia, SC. Larry has no dependents. He hands you documentation for the following items:

a. He received $35,000 in revenue from clients.

b. He purchased equipment for $10,000. Depreciation for tax purpose on the equipment is $1,000.

c. He spent $18,000 in raw ingredients for his dishes.

d. His van, which has the sole purpose of delivering food to client, caught fire during the year. The van was partially destroyed. The adjusted basis of the van was $6,000. The decline in the FMV of the van from fire is $4,000.

e. Because Larry parked his van illegally, he had to pay $350 in parking tickets during the year.

f. Larry had a catering event in Washington, D.C. that lasted a week ( 7 days). While in D.C. he also took a day-long advanced cake decorating class taught by a famed decorator inDC. He extended his trip by 2 additional days to visit the national monuments. His unallocated expenses from this trip are as follows:

i. Airfare. $300

ii. Hotel. $1,000

iii. Foods: $200

iv. Incidental: $60

iiv. Tickets to Moniments: $20

vi. Cake Decorating Class: $250

a) Determine Larry's net business income.

b) Assume the answer to part A is 8,000 (his salary is still $25,000). Compute Larry's self-employment tax.

c) Again, assume Larry's net business income was $8,000 (his salary is still $25,000). Larry contributed $3,500 to a ROTH IRA. He also bought shares of stock. They cost $5,000 total. He paid $2,500 in interest on his sister's student loans and had a $10,000 loss from selling his boat. Compute Larry's AGI.

d) If Larry takes the standard deduction, compute his taxable income and tax liability for 2017?

Question 2 - Tyrone owns 30% of JWH Manufacturing, a partnership. During 2016, JWH has a loss of $240,000. At the beginning of the year Tyrone's at-risk amount is JWH is $60,000.

a. Assume Tyrone is the president of JWH Manufacturing. What is the effect of this loss on his taxable income in 2016? Is there any suspended amount? What is his at-risk amount at the end of 2016?

b. In 2017, JWH has a taxable I ok me of $100,000. What is the effect on Tyrone's 2017 taxable income? Is there any suspended amount? What is Tyrone's at-risk amount at the end of 2017?

c. Now assume Tyrone still owns 30% of JWH Manufacturing, but he does not work in any capacity for JWH. Also assume, that JWH is Tyrone's only investment and his only other source of income is the wage he earns as president of an unrelated firm. What is the effect of JWH's 2016 loss (of $240,000) on his taxable income in 2016? Is there any suspended amount, and why are they suspended? What needs to happen for Tyrone to take any suspended losses?

Note - Question 1 solve all parts. Question 2 only solve part C.