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Determine the amount of Clem's expenses that are deductible for AGI this year (if any) under the following independent circumstances:

a. Clem is self-employed and this year he incurred $780 in expenses for tools and supplies related to his job. Since neither were covered by a qualified health plan, Wanda paid health insurance premiums of $6,570 to provide coverage for herself and Clem (not through an exchange).

b. Clem and Wanda own a garage downtown that they rent to a local business for storage. This year they incurred expenses of $1,150 in utilities and $1,120 in depreciation.

c. Clem paid self-employment tax of $18,300 (the employer portion is $9,150), and Wanda had $5,100 of Social Security taxes withheld from her pay.

d. Clem paid $95 to rent a safe deposit box to store his coin collection. Clem has collected coins intermittently since he was a boy, and he expects to sell his collection when he retires.

Answer :

Clem's expenses on tools, supplies, and medical expenses are deductible under AGI = 6,405

Find out, if any, how much Clem's expenses can be deducted from his AGI this year in the following situations:

a) tools, supplies, and medical expenses are deductible under AGI (1005 x 4570 x 2975);

= 6,405

b) depreciation and utilities are deductible (1750 x 225 x 2975);

= 2955

c) You can deduct half of your Social Security tax (1/2 of 15200 x 7600);

= 9300

d) Since the safe deposit fee is not a business entity but rather an itemized deduction, there is no deduction.

AGI: What is it?

The American income tax system defines an individual's adjusted gross income as their total gross income less certain deductions. The difference between AGI and allowances for personal exemptions and itemized deductions is what is used to calculate taxable income. For most individual tax purposes, AGI is more important than gross income. The AGI calculation is fairly straightforward. It is the sum of your reported tax-exempt income, minus any applicable deductions or "adjustments," which includes dividends, earnings from self-employment, earnings from employment, and interest from a bank account.

Your adjusted gross income is the amount of money you receive each month that must be taxed. AGI is only used in individual tax returns. AGI and net income are not the same thing, despite the fact that they are frequently used interchangeably. Total taxable income is referred to as AGI, while net income is referred to as income after taxes.

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