Question

Kristen owns a concrete mixing business (sole proprietorship), which nets $200,000 in Year 1 and is expected to grow by $10000/year in each of the next 5 years. Assume her exemptions and deductions are $10,000/year for all 6 years. Also, assume that Kristen has just purchased a 5-year class concrete mixer for $100,000. The tax and MACRS depreciation tables attached. Calculate the Taxable Income in Year 1 through 6, assuming the MACRS depreciation on the attached, and calculate her yearly taxes, assuming she is single Taxpayer.

Answer 1

	Year1	Year 2	Year 3	Year4	Year5	Year6
Income	200000	210000	220000	230000	240000	250000
Deduction	10000	10000	10000	10000	10000	10000
Depreciation	20000	32000	19200	11520	11520	5760
Taxable income	170000	168000	190800	208480	218480	234240
Tax Amount*	36133.5	35493.50	42789.50	48701.50	52201.50	57717.50

Year	Rate
1	20%(1*1/5*200%*.5)
2	32%(1-.2)*1/5*200%
3	19.20%(1-.2-.32)*1/5*200%
4	11.52% (1-.2-.32-.1920)*1/5/200%
5	11.52%( Note A)
6	5.76% (11.52%*.5)

Note A : MACRS Declining balance changes to straight line method. When that method provide equal and greater deduction. Deduction under 200% decliance balance MACRS for 5 years would be 6910$ . This is lower then Stright line methods over the remaining recoverey period which outcome to be 11520 $.

Notes B Due to half year Convention, depreciation charged for the half year in 6th year

* Tax Slab

Tax Rate	Tax Slab
10%	0-9525
12%	9526-38700
22%	38701-82500
24%	82501-157500
32%	157501-200000
35%	200001-500000