Archie Smith Works Full-Time as a Dentist and Is in a 50

question 4

Essay

Archie Smith works full-time as a dentist and is in a 50% tax bracket. He lives on an acreage where he began a part-time farming operation last year (20x1). During 20x1, Archie incurred farm expenses totaling $38,500 and he received $5,200 in farming revenue. Operations became more profitable this year, and in 20x2 Archie's farm revenues were $20,000 and expenses totaled $16,000.
Required:
a) Name the type of loss that Archie was able to recognize in 20x1? Briefly explain your answer.
b) Calculate the loss from farming operations that Archie was able to apply against his other sources of income in 20x1.
c) What effect will the 20x1 operations have on Archie's 20x2 and future year's taxable income? Show your calculations.

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Definitions:

Factor Analysis

A statistical procedure that identifies clusters of related items (called factors) on a test; used to identify different dimensions of performance that underlie a person’s total score.

Algorithms

Step-by-step procedures or formulas for solving problems, often employed in the fields of mathematics and computer science.

Availability Heuristic

A cognitive shortcut that depends on the first examples that spring to mind when one assesses a particular topic, concept, strategy, or choice.

Framing Effect

The influence of context or the way information is presented on how it is perceived and interpreted.