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D is wrong
Glenn is an accountant who races stock cars as a hobby. This year Glenn was paid a salary of $82,000 from his employer and won $2,200 in various races. What is the effect of the racing activities on Glenn’s taxable income if Glenn has also incurred $4,400 of hobby expenses this year? Assume that Glenn itemizes his deductions but has no other miscellaneous itemized deductions. decrease in taxable income of $716 increase in taxable income of $1,684 increase in taxable income of $2,200 decrease in taxable income of $2,400 no change in taxable income
Expert Answer
B. increase in taxable income of $1,684.
Hobby expenses are deductible to the extent of hobby revenues. Hence, Glenn will include $2,000 in gross income and deduct $2,200 as miscellaneous itemized deductions. After application of the 2% floor, this will result in a net increase of $1,684 in taxable income [$2,200 – ($2,200 – (2% * $84,200))] = $2,200 – ($2,200 – $1,684) = $1,684.
