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Betty operates a beauty salon as a sole proprietorship. Betty also owns and rents an apartment building. This year Betty had the following income and expenses. You may assume that Betty will owe $2,610 in self-employment tax on her salon income, with $1,305 representing the employer portion of the self-employment tax. You may also assume that her divorce from Rocky was finalized in 2016.

Interest income $11,255
Salon sales and revenue 86,360
Salaries paid to beauticians 45,250
Beauty salon supplies 23,400
Alimony paid to her ex-husband, Rocky 6,000
Rental revenue from apartment building 31,220
Depreciation on apartment building 12,900
Real estate taxes paid on apartment building 11,100
Real estate taxes paid on personal residence 6,241
Contributions to charity 4,237

Determine Betty’s AGI and complete page 1 of Form 1040 for Betty.

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Answer:

Betty's AGI = $28,934

Complete Page 1 of Form 1040 for Betty is attached.

Explanation:

Adjusted gross income:

Adjusted gross income (AGI) is an income measurement for the purpose of calculation of tax payable.

AGI is calculated by deducting allowable deduction from taxable income.

Notes for the working attached:

  • The salaries and expenses are deductible as business expenses.
  • Depreciation and real estate taxes are deducted as rental/royalty-related deductions.
  • Interest income is included in the adjusted gross income.
  • Alimony expenses are deductible from the adjusted gross income.
  • The revenue from apartment building is assumed as interest income and NOT the total income.
  • The real estate and charitable contributions are itemized deductions.

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