John and Ellen Brite (SSN 000-00-1111 and 000-00-2222, respectively) are married and file a joint return. They have no dependents. John owns an unincorporated specialty electrical lighting retail store, Brite-On. Brite-On had the following assets on January 1, 2016:

Assets                                                                                                      Cost___

Old store building purchased April 1, 2001 …………………………..   $100,000

Equipment (7-year recovery) purchased January 10, 2011 …………..30,000

Inventory valued using FIFO method: 4,000 light bulbs ……………. $5/bulb

Brite-On purchased a competitor’s store on March 1, 2016, for $107,000. The purchase price included the following:

New store building …………………………….....$60,000 (FMV)

Land ……………………………………………..............18,000 (FMV)

Equipment (5-year recovery) ……………………11,000 (FMV)

Inventory: 3,000 light bulbs …………………….$ 6/bulb (cost)

On June 30, 2016, Brite-On sold the 7-year recovery period equipment for $12,000. Brite-On leased a $30,500 car for $500/month beginning on January 1, 2016. The car is used 100% for business and was driven 14,000 miles during the year.

Brite-On sold 8,000 light bulbs at a price of $15/bulb during the year. Also, Brite-On made additional purchases of 4,000 light bulbs in August 2016 at a cost of $7/bulb. Brite-On had the following revenues (in addition to the sales of light bulbs) and additional expenses:

Service revenues ………………………………...$64,000

Interest expense on business loans ………..4,000

Auto expenses (gas, oil, etc.) …………………...3,800

Taxes and licenses ……………………………........3,300

Utilities ………………………………………….............2,800

Salaries …………………………………………..........24,000

John and Ellen also had some personal expenses:

Medical bills …………………………………...$4,500

Real property taxes …………………………..3,800

State income taxes …………………………...4,000

Home mortgage interest …………………..5,000

Charitable contributions (cash) …………...600

The Brites received interest income on a bank savings account of $275. John and Ellen made four $5,000 quarterly estimated tax payments. For self-employment tax purposes, assume John spent 100% of his time at the store while Ellen spends no time at the store. 

Additional Facts:

• Equipment acquired in 2011: The Brites elected out of bonus depreciation and did not elect Sec. 179.

• Equipment acquired in 2016: The Brites elected Sec. 179 to expense the cost of the 5-year equipment but elected out of bonus depreciation.

• Assume that the lease inclusion rules require that Brite-On reduce its deductible lease expense by $8.

Compute the Brite’s taxable income and balance due or refund for 2016.