1. an Young owns a used bookstore in Long Beach called Story Books. It is a sole proprietorship located at 2 Pine Ave, Long Beach, CA 90802. Its income and associated expenses for the year ending December 31, 2020, are the following:                         

Gross Income	$    590,000
Less: Cost of Goods Sold	(372,000)
Gross Profit	218,000
Interest expense	(7,800)
Depreciation expense	(2200+12800+4285.71) = (19285.71)
Office expense	(54,000)
Supplies expense	(2,100)
Meal’s expense	(4,500)
Entertainment expense	(1,900)
Utilities expense	(3,700)
Wages	(70,000)
FICA taxes expense	(7,963)
Total Expense	171248.71
Net Income/(Loss)	$     46751.29

           

On January 1, 2020, Story Books purchased and place in service a new delivery van for $64,000. The van’s weight does not exceed 6,000 pounds. Furthermore, it purchased bookcases (7-year property) for $30,000, and computers (5-year property) for $11,000 on March 1, 2020. Assume Story Books does not have any depreciable assets other than the new assets placed in service for 2020. It elected to use MACRS. Story Books elected out of bonus depreciation and elected not to claim section 179.

 

2.. Ivy Young is previously divorced (in 2010) from Brian Musk (SSN 453-87-5402), and she had one child with him. In 2020, she made alimony payments totaling $17,000 to him along with child support payments of $4,000. She does not claim this child as a dependent.

She is making child support payments; she should not deduct those from her taxable income. It is considered a personal expense; it is not deductible.

If they divorced after January 1,2019, she should not deduct alimony paid to her spouse. But, if her divorce was settled before January 1,2019, then her alimony payments can be deducted.

 

3. The Youngs own a house at 242 6^th street, Seal Beach, CA, 90740. They purchased this house on January 1, 2014, for $500,000. 80% of the purchase price was related to the house, and the remaining 20% was related to the land. Starting from January 1, 2014, they have converted it to a rental property and rented it to Bill James. The rental activity does not generate QBI. In 2020, its rental report showed the following:

 

Rental Income	$    48,000
Interest expense (mortgage)	(17,000)
Repair expense	(900)
Property tax expense	(5,100)
Utilities Expense	(1,000)
Depreciation Expense	(14545)
Total Expense	(38545)
Net Income/(Loss)	$     9455

 

4. The Youngs also had invested in several flow-through entities (they have not actively participated in the activities and their at-risk amount for Rolling Sushi is $50,000). They are not QBI. In 2020, the results from these flow-through entities were as follows:

Socal Brewers (Limited Partnership)

$   31,000

Rolling Sushi (S-corp)

($   30,400)

 

How to fill out all of this to Form 1040.

Answer rating: 100% (QA)

SOLUTION Step 1 Step 2 Calculation of Depreciation of the ... View the full answer