Question

RE RC mon Problem 54. John Smith, age 31, is single and has no dependents. At the beginning of 2020, John sion Making started his own excavation business and named it Earth Movers, John lives at 1045 Center Street, Lindon, UT, and his business is located at 381 State Street, Lindon, munications UT. The Zip Code for both addresses is 84012. John's Social Security number is 111-11-1111, and the business identification number is 11-1111111. John is a cash basis taxpayer. During 2020, John reports the following items in connection with his business Fee income for services rendered $912,000 Building rental expense 36,000 Office furniture and equipment rental expense 9,000 Office supplies 2,500 Utilities 4,000 Salary for secretary 34,000 Salary for equipment operators 42,000 Payroll taxes 7,000 Fuel and oil for the equipment 21,000 Purchase of three new front-end loaders on January 15, 2020 560,000 Purchase of a new dump truck on January 18, 2020 80,000 During 2020, John recorded the following additional items. Interest income from First National Bank $10,000 Dividends from ExxonMobil 9,500 Quarterly estimated tax payments 11,500 John wants to maximize his cost recovery deductions (including taking any $ 179 expense and any available additional first-year depreciation) On October 8, 2020, John inherited IBM stock from his Aunt Mildred. John had been her favorite nephew. According to the data provided by the executor of Aunt Mildred's estate, the stock was valued for estate tax purposes at $110,000. John is considering selling the IBM stock for $125,000 on December 29, 2020, and using $75,000 of the proceeds to purchase an Acura ZDX. He would use the car 100% for business, John wants to know what effect these transactions would have on his 2020 adjusted gross income. Write a letter to John in which you present your calculations. Ignore any Federal self-employment tax implications. U: Sii ta R R R

Answer 1

Page No. IBM stock Note 28 Gain on sall of IBM Amount realised 125000 $ 15000 > Adjusted Basis - 110000 = Hope above calculations for both the alternatives must have been clear
If the stock was not sold and car was not purchased , the adjusted gross income will be $136000

If the stock was sold and car was purchased , the adjusted gross income will be be $136200