Charles is a single person,age 35,with no dependents.In 2013,Charles has gross income of $75,000 from his sole proprietorship.Charles also incurs $80,000 of deductible business expenses in connection with his proprietorship.He has interest and dividend income of $22,000.Charles has no itemized deductions.Charles's taxable income is

Question

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To find Charles's taxable income, we need to first calculate his adjusted gross income (AGI).

AGI = Gross income - Deductible business expenses

AGI = $75,000 - $80,000 = -$5,000

Since Charles's AGI is negative, he has a net operating loss (NOL) for the year. This means he has more business expenses than income and can carry over the NOL to future years to offset income.

However, for the purpose of this question, we need to determine Charles's taxable income for the current year. Since Charles has no itemized deductions, his taxable income is simply his AGI plus any income that is not subject to deductions or exemptions, such as interest and dividend income.

Taxable income = AGI + Interest and dividend income

Taxable income = -$5,000 + $22,000 = $17,000

However, since Charles's taxable income cannot be negative, the amount of the NOL that can be deducted in the current year is limited to the lesser of the NOL or 100% of the taxable income.

Therefore, Charles's taxable income for the current year is $7,000 ($17,000 - $10,000).

Charles Is a Single Person,age 35,with No Dependents