Tax Return 2 Explanations

Explanations Form 1040 Line 1a) Wages $130000 Janice + $35000 Richard = $165,000 Line 7) Capital loss of $6000, but capped at the $3,000 limit Stock Sales Purchase Price Selling Price G/L LMN Stock 4,000 7,000 3,000 Gain LT, preferential rate QRS Stock 9,000 2,000 7,000 Loss ST, ordinary rate TUV Stock 5,500 3,500 2,000 Loss ST, ordinary rate NET G/L 6,000 Capital Loss Line 9) $210,945 = 165,000+1,545-3,000+47,400 Line 11) $206,613 AGI = $210,945 total income - $4,332 (line 10) Line 12) Itemized deductions of $27,700 from Schedule A Line 13) $7,968 *37,900 + 3,500 - 1,562 = 39,838 *39,838 * 0.2 = 7,967.6 (round to dollar) Line 14) $35,668 = $27,700 + $7,968 Line 15) $170,945 = $206,613-$35,668 Line 16) [(170,945-83,550)*22% +9,615] = $28,841.9 rounded to $28,842 Line 23) $3,123 SE tax Line 24) $31,965 = 3,123+28,842 Line 37) $31,965 (line24) - $30,000 (line 33) = $1,965 amount you owe Schedule 1 Line 3) $37,900 from Schedule C line 31 Line 5) $3,500

Level 1: Basis Level ABC LLP DEF LLP Actual income/ loss $6,000 $(6,500) Beg Basis $2,000 $5,500 + Income $6,000 - + Contribution - - - Distribution $(5,000) $3,000 Subtotal $3,000 $2.500 - Loses $(2,500) End Basis $3,000 - Amount that flows to Level 2 $6,000 $(2,500) Suspended carryforward losses $4,000 Level 2: Passive Level ABC LLP DEF LLP From level 1 $6,000 $(2,500) ABC LLP $6,000 DEF LLP $(2,500) Net Amount $ 3,500 Taxable Incom from passive investment $3,500 Line 10) 37900+3500+6000 = $47,400 Line 15) $1,562 SE Tax calculation Step #1 37,900 Step #2 35,000.65 37900 * 0.9235 Step #3 1,015.01885 35000.65 * 0.029 Step #4 2,108 147,000-130,000 = 17,000 → Fica cap is less than step 2 17,000 * 12.4% = 2,108 Step #5 3,123 1015.01885+2108 = 3123.01885 (round to dollar) Step #6 $1,562 3123*0.5 = 1561.5(round to nearest dollar) Line 20) $2,770 Traditional IRA

MAGI = Total Income - 50% of SE tax = 210945-1562 = 209,383 Spousal IRA applies, Phase out range is 204k to 214k = 10,000 (214k-204k). AGI: (209,383-204k) / 10,000 = 0.5383 phaseout % 0.5383 * 6k = 3229.8 phased out portion 6k-3229.8 = 2770.2 ≅ $2,770 allowable deduction Line 26) $4,332 = 1,562 + 2,770 Schedule 2 Line 4) $3,123 SE tax Schedule A Line 5e) $10,000 : $10,000 is less than $17,500 Line 17) $27,700 = 10,000 + 10,700 + 7,000 Schedule C Line 1) $69,500 self employed income Line 7) $69,500 gross income Line 24b) $1,200= $600 meals while business travel + $600 meals while meeting with clients Line 28) $31,600 = $4,500 (line 15) +$15,000 (line 20b) + $1,800 (line 22) + $1,100 (line 24a) + $1,200 (line 24b) + $8,000 (line 25) Line 29) $37,900 = $69,500 (line 7) - $31,600 (line 28) Line 31) $37,900 net profit Additionally, (5) Average Self Employment Tax rate = 3,123 / 37,900 = 8.24% It is below the 15.3% nominal rate. 12.4% Social Security tax and a 2.9% Medicare tax. (6) $7,000 donation to charitable organizations decreases their taxable income by $7,000. This saves them #.