John Smith, age 31, is single and has no dependents. At the beginning of 2017, John 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, UT. The ZIP Code for both addresses is 84042. John€™s Social Security number is 111-11-1111, and the business identification number is 11-1111111. John is a cash basis taxpayer. During 2017, John reports the following items in connection with his business.

During 2017, John recorded the following additional items.

John makes the election under § 179 on the three front-end loaders purchased in January. John claims any available additional first-year depreciation.

On October 8, 2017, 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, 2017, 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 2017 adjusted gross income.

Write a letter to John in which you present your calculations, and prepare a memo for the tax files. Ignore any Federal self-employment tax implications.

Transcribed Image Text:

$912,000 Fee income for services rendered Building rental expense Office furniture and equipment rental expense 36,000 9,000 Office supplies 2,500 4,000 34,000 Utilities Salary for secretary Salary for equipment operators 42,000 7,000 Payroll taxes Fuel and oil for the equipment Purchase of three new front-end loaders on January 15, 2017, for $560,000 Purchase of a new dump truck on January 18, 2017 21,000 560,000 80,000 Interest income from First National Bank Dividends from Exxo nMobil Quarterly estimated tax payments $10,000 9,500 11,500