Question: Mr S paid 16 600 cash for a tangible asset for
Mr. S paid $16,600 cash for a tangible asset for use in his new business. The asset is three-year recovery property. Before consideration of any cost recovery deduction, the business generated a net loss this year (year 0). However, Mr. and Mrs. S have other sources of income, so they can deduct the entire business loss on their individual tax return. Mr. S has two choices with respect to the new asset. He can capitalize the cost and depreciate it under MACRS. Alternatively, he can elect to expense the cost under Section 179. Because his business generates no taxable income, the expense would be nondeductible. However, it would carry forward into future years. Mr. S predicts that the business will operate at a loss for next year (year 1) but should generate at least $20,000 income the following year (year 2). Consequently, he can deduct the Section 179 expense carryforward in that year. If Mr. and Mrs. S’s marginal tax rate is 25 percent and they use a 7 percent discount rate to compute NPV, should Mr. S elect to expense the cost of the new business asset?
Answer to relevant QuestionsBBB Company, which manufactures industrial plastics, owns the following assets. Characterize each asset as either a capital, ordinary, or Section 1231 asset. a. A computer system used in BBB’s main office. b. A 50 percent ...Under what circumstances would a taxpayer elect not to use the installment sale method of reporting gain? In year 1, Aldo sold investment land with a $61,000 tax basis for $95,000. Payment consisted of $15,000 cash down and the purchaser’s note for $80,000. The note is being paid in 10 annual installments of $8,000, beginning ...Koil Corporation generated $718,400 ordinary income from the sale of inventory to its customers. It also sold three non-inventory assets during the year. Compute Koil’s taxable income assuming that: a. The first sale ...EzTech, a calendar year accrual basis corporation, generated $994,300 ordinary income from its business this year. It also sold the following assets, all of which were held for more than 12 months. EzTech used the ...
Post your question