t is engaged in a coin collection hobby activity his income and expenses are as follows...
t is engaged in a coin collection hobby activity his income and expenses are as follows hobby income 20k hobby expenses 30k what amount is deductible 25k 20k 40k none of above
Homework Answers
Answer: $ 20,000
Prior to 2018 deduction was limited and also critical for calculation:
We need to Substract 2% of AGI from Hobby expenses & remaining will be the allowable deduction.
For Example:
Adjusted Gross Income (AGI) $ 20000
Hobby Expenses $ 5000
Deduction was calculate as follows:
2% of AGI = $ 400 ($ 20000 *2%)
Allowable deduction = $ 5000 - $ 400
= $ 4600
You can claim $ 4600 as deduction provided You have Hobby Income at least $5000 (of Hobby expenses)
From 2018 & onwards, Tax Cuts and Jobs Act (TCJA) came into effect that Maximum deduction will be the Income earned from Hobby.
So, we can claim all hobby Income as a deduction.
Given Information,
Hobby Income $ 20,000
Hobby Expenses $ 30,000
In this case Expenses are higher than Income, So we can not claim all expenses here, So in this case our maximum deduction will be the amount of hobby Income i.e $ 20,000.
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