Question

# Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2018, she...

Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2018, she sells the following long-term assets used in her business:

 Asset Sales Price Cost Accumulated Depreciation Building \$230,000 \$200,000 \$52,000 Equipment 80,000 148,000 23,000

Lily's taxable income before these transactions is \$160,500.

What are Lily's taxable income and tax liability for the year? Use Tax Rate Schedule for reference. (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

solution:

Long-term capital gain on sale of building = \$230,000 - (\$200,000-52,000) = \$82,000

Long-term capital loss on sale of building = \$80,000 - (\$148,000-23,000) = \$(45,000)

Thus, net long-term capital gain on sale of assets = \$82k- 45k = \$37,000

so, Lily's taxable income = \$160,500 + 37,000 = \$197,500

and tax liability for the year :

 Tax liability Amount Computation Tax on long-term capital gain \$5,550 \$37,000*15% Tax on ordinary income \$33,049.5 \$32,089.50 + (\$160,500-157,500)*32% Tax liability for the year \$38,599.5

here is the tax rate schedule:

#### Earn Coins

Coins can be redeemed for fabulous gifts.