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Through November, Cameron has received gross income of $120,000. For December, Cameron is considering whether to accept one more work engagements for the year. Engagement 2 will generate $7,000 of revenue at a cost to Cameron of $3,000, which is deductible for AGI. In contrast, engagement 2 will generate $5,000 of qualified business income (QBI) which is eligible for the 20% QBI deduction. Cameron files as a single taxpayer.
Calculate Cameron’s taxable income assuming he chooses engagement 1 and assuming he chooses engagement 2. Assume he has no itemized deductions.

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Answer:

Cameron’s taxable income = $111800

Explanation:

From the information given:

Cameron's taxable income can be computed as follows:

Description                                      Engagement 1          Engagement 2

Gross Income before new -             $120000                  $120000

work engagement

Income from engagement (ad          $7000                      $5000

Additional for AGI deduction (less)   $3000                         -                    

Adjusted Gross Income                    $124000                   $125000

Greater of itemized /Standard

Deduction                  (less)                $12,200                      $12,200

Deduction of QBI    (5000×20%)            -                               $1000    

Taxable Income                                 $111800                       $111800

The Taxable income is calculated according to 2019 limit

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