Kerri,a Single Taxpayer Who Itemizes Deductions on Schedule A,incurs $15,000

question 64

Essay

Kerri,a single taxpayer who itemizes deductions on Schedule A,incurs $15,000 of interest expense on funds borrowed to acquire taxable bonds.Kerri also has $20,000 of taxable interest income for the year.Assume Kerri is in a 30% marginal tax bracket.How much of the interest expense can she deduct? Assuming the same facts except that the $20,000 of investment income is a qualifying dividend rather than taxable interest income,what should Kerry do if she wants to minimize her current year tax liability?

---

Definitions:

Working Capital Ratio

a financial metric that measures a company's ability to pay off its current liabilities with its current assets, an indicator of financial health.

Total Current Assets

The total value of all assets that are expected to be converted into cash within one year, including cash, inventory, and receivables.

Total Current Liabilities

The sum of all debts and financial obligations a company is expected to pay within one fiscal year.

Inventory Turnover Rate

A measure of how quickly a company sells and replaces its stock of goods within a certain period.