Questionellen brite and johnnbsp are married and file a

Assignment Help Taxation

Reference no: EM13348363

Question:

Ellen Brite and John are married and file a joint return. They have no dependents. John owns an unincorporated specialty electrical lightning retail store, Brite-On. Brite-On had the given assets on January 1, 2012:

Old store building purchased april 1, 1999: $100,000

Equipment (7-year recovery)purchased January 10,2007: $30,000

Inventory valued using FIFO method: 4,000 light bulbs: $5/bulb

Brite-On purchased a competitor's store on March 1, 2012 for $107,000. The purchase price includes the given:

New store building: $60,000(FMV)

Land: $18,000(FMV)

Equipment:(5-year recovery): $11,000(FMV)

Inventory: 3,000 lights bulbs: $6/bulb(cost)

On Junes 30,2012, Brite-On sold the 7-year recovery period equipment for $12,000. Brite-On leased a $30,500 car for $500/month starting on January 1,2012. The car is used 100% for business and was driven 14,000 miles during the year.

Brite-On sold 8,000 light bulbs at a price of $15/bulb during the year. Also, Brite-On made additional purchases of 4,000 light bulbs in August 2011 at a cost of $7/bulb. Brite-On had the given revenues(in addition to the sales of light bulbs) an additional expenses:

Service revenue: $64,000

Interest expense on business loans: $4,000

Auto expenses (gas, oil, etc): $3,800

Taxes and licenses: $3,300

Utilities: $2,800

Salaries: $24,000

John and Ellen also had some personal expenses:

Medical bills: $4,500

Real property taxes: $3,800

State income taxes: $4,000

Home mortgage interest: $5,000

Charitable contributions (cash): $600

The Brites received interest income on a bank savings account of $275. Ellen and John made four $5,000 quarterly estimated tax payments. For self-employment tax purposes, consider John spent 100% of his time at the store while Ellen spends no time at the store.

Additional facts:

-Equipment acquired in 2007: the Brites computed of bonus depreciation and did not elect Sec. 179

-Equipment acquired in 2012: the Brites elected Sec. 179 to expense the cost of the 5-year equipment but elected out of bonus depreciation

-Lease inclusion rules need that Brite-On reduces its deductible lease expense by $8

Reference no: EM13348363

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