Question

Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2019, she sells the following long-term assets used in her business:

Asset	Sales Price	Cost	Accumulated Depreciation
Building	$230,000	$200,000	$52,000
Equipment	80,000	148,000	23,000

Lily's taxable income before these transactions is $190,500.

What are Lily's taxable income and tax liability for the year? Use Tax Rate Schedule for reference. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

TAXABLE INCOME : __________ ?

TAX LIABILITY : ___________?

2019 Tax Rate Schedules

Individuals

Schedule X-Single

If taxable income is over:	But not over:	The tax is:
$           0	$    9,700	10% of taxable income
$    9,700	$ 39,475	$970 plus 12% of the excess over $9,700
$ 39,475	$ 84,200	$4,543 plus 22% of the excess over $39,475
$ 84,200	$160,725	$14,382.50 plus 24% of the excess over $84,200
$160,725	$204,100	$32,748.50 plus 32% of the excess over $160,725
$204,100	$510,300	$46,628.50 plus 35% of the excess over $204,100
$510,300	—	$153,798.50 plus 37% of the excess over $510,300

Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)

If taxable income is over:	But not over:	The tax is:
$           0	$ 19,400	10% of taxable income
$ 19,400	$ 78,950	$1,940 plus 12% of the excess over $19,400
$ 78,950	$168,400	$9,086 plus 22% of the excess over $78,950
$168,400	$321,450	$28,765 plus 24% of the excess over $168,400
$321,450	$408,200	$65,497 plus 32% of the excess over $321,450
$408,200	$612,350	$93,257 plus 35% of the excess over $408,200
$612,350	—	$164,709.50 plus 37% of the excess over $612,350

Schedule Z-Head of Household

If taxable income is over:	But not over:	The tax is:
$           0	$ 13,850	10% of taxable income
$ 13,850	$ 52,850	$1,385 plus 12% of the excess over $13,850
$ 52,850	$ 84,200	$6,065 plus 22% of the excess over $52,850
$ 84,200	$160,700	$12,962 plus 24% of the excess over $84,200
$160,700	$204,100	$31,322 plus 32% of the excess over $160,700
$204,100	$510,300	$45,210 plus 35% of the excess over $204,100
$510,300	—	$152,380 plus 37% of the excess over $510,300

Schedule Y-2-Married Filing Separately

If taxable income is over:	But not over:	The tax is:
$           0	$    9,700	10% of taxable income
$    9,700	$ 39,475	$970 plus 12% of the excess over $9,700
$ 39,475	$ 84,200	$4,543 plus 22% of the excess over $39,475
$ 84,200	$160,725	$14,382.50 plus 24% of the excess over $84,200
$160,725	$204,100	$32,748.50 plus 32% of the excess over $160,725
$204,100	$306,175	$46,628.50 plus 35% of the excess over $204,100
$306,175	—	$82,354.75 plus 37% of the excess over $306,175

Answer 1

Question: compute Taxable income and Tax liability Solution: INCOME STATEMENT FOR M/S. LILY TUCKER FOR 2012 Tax Rate Schedule : Single $ 190,500 Profit and gain from business Income derived from Bike shop Short Term Capital Gain /(Loss) Sale of Building (WN-1) Sale of Equipment (WN-2) $ $ 82,000 45,000 $ $ 37,000 227,500 Taxable income 46.629 Tax liability Standard (204,100-510,300) 35% on Excess portion of (204,100-227,500) Tax Liability 9.190 54.819 $ 230,000 Workings 1 Sale of Building Sale price Cost Accumulated Depreciation Book Value Gain on sale of Asset $ $ 200,000 52,000) $ 148,000 82,000 Sale of Equipment Sale price $ 80,000 Cost $ $ 148,000 23,000) Accumulated Depreciation Book Value Loss on sale of Asset 3 125.000 (45.000) Note: 1. Since the asset is held for long term where the same shall be put to use for the purpose of business, the gain or loss from the same shall be considered as shorterm capital gain even though the asset held more than a year. The question does not specify the tax rate for the short term capital gains the rates, the above gains are added to ordinary income.