Reference no: EM131773819

Ken and Barbie live in Mill Valley, California.  They have one daughter who was born in 2011.  Their daughter lives with them and they claim her as a dependent.  The personal exemption for this problem is $4,000 per exemption.  Ken is an employee of Company X and Barbie is a Consultant with her own business.  They own their home.

They have a brokerage account that produced the following income for them:  $2,609 of taxable interest, $1,724 of tax-exempt interest, total dividends of $2,682.  Included in total dividends were $2,393   of qualified dividends.   Ken and Barbie sold two stocks in 2016.  They sold 500 shares of Safeway stock for $54,133 and 60 shares of Newtech Co. for $11,848.  They had purchased the Safeway stock in 2008 for $40,000 and purchased the Newtech stock in 2010 for $12,000.

Ken and Barbie own a rental property in Santa Cruz.  They used their property for one week during 2016.  It was rented to unrelated persons during the rest of the year.

Ken's Mother died and he received an inheritance of $100,000 in 2016. 

Ken paid $12,000 of alimony to his ex-wife in 2016.

Other details relating to these items of income and expense are below:

Taxable wages from Company X                                             $34,928

State income tax withheld from Ken's wages in 2016                $2,900

Property taxes paid on their personal residence                      $20,657

Mortgage interest paid on their personal residence                 $21,654

Investment management fees paid to

Their broker for managing their assets.                                     $3,836

State income taxes paid with their 2015 return                       $18,225

in April of 2016.

Barbie's Consulting Income                                                       $6,500

Consulting expenses:

       Supplies                                   $210

       Telephone                               $560

      619 miles driven to client appointments and meetings (use 54 cents per mile.)

      Parking tickets   $310

      Meals with clients              $650

Income and expenses related to the rental property:

  Mortgage loan balance 01/01/2016     240,000

  Mortgage loan balance 12/31/2016     235,000

• Calculate Barbie's net income from her Consulting business.
• Calculate Ken and Barbie's net income from the rental real estate. 
• Calculate Ken and Barbie's deductible itemized deductions.
• Calculate Ken and Barbie's adjusted gross income.
• Calculate Ken and Barbie's taxable income.