Sebastian(age 46)and Kaitlin(age 45)are Married and File a Joint Tax

question 80

Multiple Choice

Sebastian(age 46) and Kaitlin(age 45) are married and file a joint tax return.Their 2015 adjusted gross income is $390,000 and includes $2,600 in investment income ($2,000 in short-term capital gains and $600 of interest income) .They provided 100% of the support for their daughter,Olivia,age 26,who lives with them,and earned $4,700 from her part-time job.They also provided 100 percent of the support for Sebastian's mother,Emily,who is 67,blind,and lives in a nursing home.Emily received $4,000 in Social Security benefits and $450 of interest income.Sebastian and Kaitlinalso paid the following amounts in 2015: -$38,500 interest on their home mortgage (acquisition debt) on their principal residence purchased in 1995.The principal amount of the mortgage is $1,250,000.They also paid $11,000 in real estate taxes on the home.
-$6,250 interest on a home equity loan (principal amount of $125,000) on their home.They spent $50,000 of the loan proceeds for remodeling their kitchen,$30,000 on a European vacation,and $45,000 for a new car.
-$6,000 investment interest expense
-$7,600 unreimbursed employee business expenses (none for meal or entertainment expenses)
-$4,700 in state income taxes to the state of California where Sebastian worked for part of the year
-$1,800 in state and local general sales taxes
-$490 fee for preparation of their 2014 tax return,paid to their CPA in 2015
-$2,500 contributed to the State University Athletic Booster Club (to allow them to purchase tickets in good seat locations for football games) and $1,000 contributed to the State University Business School Alumni Association for academic scholarships.They also donated a painting (purchased 11 years ago for $4,200) to the Salvation Army,which was then sold for it fair market value of $17,000 at its fundraising auction.
How much can Sebastian and Kaitlin deduct for charitable contributions for 2015?

• A)$5,200
• B)$7,200
• C)$7,700
• D)$20,500

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Definitions:

Going-concern Assumption

An accounting principle that assumes a business will continue to operate indefinitely, rather than being liquidated.

Financial Statements

Standardized documents that provide an overview of a company's financial performance and position, including the balance sheet, income statement, and cash flow statement.

Operating

Pertains to the regular, ongoing activities of a business that are involved in the production or sale of goods and services.

GAAP

Generally Accepted Accounting Principles; a framework of accounting standards, rules and procedures defined by the professional accounting industry, used to compile financial statements.