Question

Penny, a full-time biochemist, loves stock car racing. To feed her passion, she bought a used dirt-track car and has started entering some local dirt-track races. The prize money is pretty small ($1,000 for the winner), but she really is not in it for the money. Penny reported the following income and expenses from her nights at the track: Prize money $3,660 Expenses: Transportation from her home to the races 1,760 Depreciation on the dirt-track car 4,780 Entry fees 5,400 Oil, gas, supplies, repairs for the dirt-track car 2,890 What are the tax effects of Penny’s racing income and expenses assuming that the racing activity is a hobby for Penny?

Answer 1

Answer:

Options includes:

Penny’s racing income - Includable or excludable (choose one)

Penny;s racing expenses – Deductible or non deductible (Choose one)

Gross income for tax – Increases or decreases (choose one)

Penny’s racing income is includable in Gross Income

Penny's racing expenses is Non-Deductible. This is because Miscellaneous expenses deduction has been eliminated. No hobby expenses will be deductible

Gross Income for Tax will Increase. This is because hobby income increases and this in turn increase the gross income for tax.