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PDtax
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1920
Experience:  32 years tax experience, including four years at a Big 4 firm.
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The following information relates to Taylor, a single taxpayer.

Customer Question

The following information relates to Taylor, a single taxpayer.

Taylor Widget Company
Taylor conducts a small business as a sole proprietorship (not incorporated). During the current year, the following information is provided related to sale of assets held for greater than one year and used in the business:

Item Sales Price Orig. Cost Depreciation Taken Other Info
Computer Equipment $1,000 $3,000 $3,000 Accelerated depreciation used
Straight line would have been $2,000
Manufacturing Equipment $22,000 $75,000 $75,000 Accelerated depreciation used
Straight line would have been $50,000
Building $200,000 $150,000 $25,000 Straight line depreciation used
Accelerated depreciation would have been $50,000
Land $100,000 $50,000 None

POSSIBLE CURRENT TRANSACTIONS
It is planned that during December 2012 or January 2013, Taylor will sell the last two of his investment assets (San Francisco Land and stock in XYZ.)

San Francisco Land
On June 12, 2004 Taylor received a gift of San Francisco land from his mother. The land had a value of $100,000 on June 12, 2004. The land had been inherited on January 12, 1988 by Taylor’s mother from Taylor's grandfather. Taylor's grandfather had purchased the land in 1932 for $16,000. The land was worth $166,000 on January 12, 1988 (the date of the death of Taylor 's grandfather).The San Francisco land can be sold for $200,000 with the transaction being finalized either in December 2012 or January 2013.

XYZ Stock
The 500 shares of XYZ, which were acquired on January 2, 2011 for $125,000, can be sold currently for $94,000. Taylor believes that the price of these shares will stabilize through the end of this year, and possibly through January15, 2013.

Before considering the above information, Taylor’s estimated taxable income for 2012 is $125,000 (including $5,000 of dividend income from XYZ) and about the same for 2013.

REQUIRED:
A. Assuming Taylor sells the San Francisco Land and the XYZ stock in December 2012; calculate Taylor’s 2012 taxable income and tax liability. You should clearly indicate the nature of each gain resulting from each transaction. (Tax rate schedule is included on the next page.)

B Would Taylor be better off if he had delayed selling the San Francisco land and/or
XYZ stock till 2013?
Submitted: 2 years ago.
Category: Tax
Expert:  Lindie-mod replied 2 years ago.
Hi, I’m a moderator for this topic and I wonder whether you’re still waiting for an answer. If you are, please let me know and I will do my best to find a Professional to assist you right away. If not, feel free to let me know and I will cancel this question for you. Thank you!
Customer: replied 2 years ago.
I am still waiting for an answer
Expert:  Lindie-mod replied 2 years ago.
Sometimes, finding the right Professional can take a little longer than expected and we thank you greatly for your understanding. We’ll be in touch again shortly
Expert:  PDtax replied 2 years ago.
hi from just answer. I did not have 2012 forms, but my review showed tax rates will be the same for 2011 and 2012 for these income items. There is an addition for 2013 that will impact part 2 of your question.
Expert:  PDtax replied 2 years ago.
1. 2012 taxable income and tax liability: Schedule C business income $120,000 Dividend income 5,000 Sale of computer equipment 1,000 ordinary income (1245 recapture) Sale of mfg equipment 22,000 ordinary income (1245 recapture) capital gains: sale of land $50,000 sale of building 75,000 (1250) sale of inherited land 34,000 (basis for gain is donor's basis) sale of XYZ shares 31,000 loss total income 276,000 less: self employment deduction 8,228 adjusted gross income 267,772 less: 2012 std ded 5950 less: 2012 exemption 3800 taxable income 258,022 tax from D worksheet: taxable income 258022 less: dividends 5000 less: D total 128,000 worksheet line 14 150,022 tax comp.: (133,000-25,000 unrecaptured 1250 gain) = 108,000*.15=16200 plus 25,000*.25=6250 plus income tax on 125022=28623 total tax: 51,073. Add self employment tax of 14,321 for total tax of 65,394. part 2: For 2013, rates are the same, but there is an additional 3.8% tax on capital gains for medicare, so this capital gains-rich return would have higher effective rates on the capital gains for 2013. Thanks for asking at Just Answer. Bonuses are welcomed (hint hint).
Customer: replied 2 years ago.

Hi,

 

Thank you for the answer, could you please re-paste in a more user-friendly format.

Attached is the question a better format.

 

Thank you in advance,

 

Attachment: 2012-06-07_061042_the_following_information_relates_to_taylor.docx

Expert:  PDtax replied 2 years ago.
ok, let's try again. sorry about the formatting. I put this in word, then brought it over. Answer attached to end of question:


The following information relates to Taylor, a single taxpayer.

Taylor Widget Company
Taylor conducts a small business as a sole proprietorship (not incorporated). During the current year, the following information is provided related to sale of assets held for greater than one year and used in the business:

Item Sales Price Orig. Cost Depreciation Taken Other Info
Computer Equipment $1,000 $3,000 $3,000 Accelerated depreciation used
Straight line would have been $2,000
Manufacturing Equipment $22,000 $75,000 $75,000 Accelerated depreciation used
Straight line would have been $50,000
Building $200,000 $150,000 $25,000 Straight line depreciation used
Accelerated depreciation would have been $50,000
Land $100,000 $50,000 None

POSSIBLE CURRENT TRANSACTIONS
It is planned that during December 2012 or January 2013, Taylor will sell the last two of his investment assets (San Francisco Land and stock in XYZ.)

San Francisco Land
On June 12, 2004 Taylor received a gift of San Francisco land from his mother. The land had a value of $100,000 on June 12, 2004. The land had been inherited on January 12, 1988 by Taylor’s mother from Taylor's grandfather. Taylor's grandfather had purchased the land in 1932 for $16,000. The land was worth $166,000 on January 12, 1988 (the date of the death of Taylor 's grandfather).The San Francisco land can be sold for $200,000 with the transaction being finalized either in December 2012 or January 2013.

XYZ Stock
The 500 shares of XYZ, which were acquired on January 2, 2011 for $125,000, can be sold currently for $94,000. Taylor believes that the price of these shares will stabilize through the end of this year, and possibly through January 15, 2013.

Before considering the above information, Taylor’s estimated taxable income for 2012 is $125,000 (including $5,000 of dividend income from XYZ) and about the same for 2013.

REQUIRED:
A. Assuming Taylor sells the San Francisco Land and the XYZ stock in December 2012; calculate Taylor’s 2012 taxable income and tax liability. You should clearly indicate the nature of each gain resulting from each transaction. (Tax rate schedule is included on the next page.)

B Would Taylor be better off if he had delayed selling the San Francisco land and/or
XYZ stock till 2013?




2012 Tax Rate Table for a Single Taxpayer:

Taxable Income Over But not Over The Tax is Of the amount over
$ - $ 8,700.00 ---------10% $ 0
$ 8,700.00 $ 35,350.00 $870 + 15% $ 8,700.00
$ 35,350.00 $ 85,650.00 $4,867.50 + 25% $ 35,350.00
$ 85,650.00 $178,650.00 $17,442.50 + 28% $ 85,650.00
$178,650.00 $388,350.00 $43,482.50 + 33% $178,650.00
$388,350.00 -------------- $112,683.50 + 35% $388,350.00


2012 Personal Exemption: For taxable years beginning in 2012, the personal
exemption is $3,800

2012 Standard Deduction: For taxable years beginning in 2012, the standard
deduction amount is $5,950.



1. 2012 taxable income and tax liability:

Schedule C business income $120,000
Dividend income 5,000
Sale of computer equipment 1,000 ordinary income (1245 recapture)
Sale of mfg equipment 22,000 ordinary income (1245 recapture)

capital gains:
sale of land $50,000
sale of building 75,000 (1250)
sale of inherited land 34,000 (basis for gain is donor's basis)
sale of XYZ shares 31,000 loss

total income 276,000
less: self employment deduction 8,228
adjusted gross income 267,772
less: 2012 std ded. 5950
less: 2012 exemption 3800
taxable income 258,022

tax from D worksheet:
taxable income 258022
less: dividends 5000
less: D total 128,000
worksheet line 14 150,022
tax comp.: (133,000-25,000 unrecaptured 1250 gain) = 108,000*.15=16200

plus 25,000*.25=6250

plus income tax on 125022=28623 total tax: 51,073.

Add self employment tax of 14,321 for total tax of 65,394.

part 2: For 2013, rates are the same, but there is an additional 3.8% tax on capital gains for medicare, so this capital gains-rich return would have higher effective rates on the capital gains for 2013. Thanks for asking at Just Answer. Bonuses are welcomed (hint hint).

PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1920
Experience: 32 years tax experience, including four years at a Big 4 firm.
PDtax and 6 other Tax Specialists are ready to help you
Customer: replied 2 years ago.
I have a different answer:

Attachment: 2012-06-18_050241_question_4.docx

Expert:  PDtax replied 2 years ago.
I reviewed your answer. The other income of 120,000 was not treated as self-employment income on your different answer. My assumption is reasonable, since one doesn't often see 120,000 of other income. For purposes of a homework assignment, I stand behind my answer, but yours is acceptable as well.

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