Question

For a single self-employed individual who runs a retail coffee shop is age 35 and has no dependents. He opened his business in January 2018. He is a cash basis taxpayer. He reported following income and expense items connected with business: Income from sale:89000, Rent:17000, Utilities:6800, Supplies:2000, Insurance:5500. He purchased and placed in service some fixed assets for business. He wants to elect immediate expensing under  § 179:1.Machinery and Equip(new) costing 22000 on Jan 9, 2. Computer Equip(new) costing 13000 on July 29. Itemized deductions are as follows: state income tax:3218; Home mortgage interest paid to First National Bank:5000; property tax on home:2000; Charitable contribution to University of New Mexico:500. He did not keep a record of the sales tax she paid. The amount from the sales tax table is $532. He reports interest income of $300 on certificates of deposit at First National Bank. He made estimated federal income tax payments of $1,300 for 2018.

Calculate this man's refund or amount due to IRS for 2018. Ignore self-employment tax in calculation.

Answer 1

CALCULATION OF REFUND

INCOME FROM SALE 89000

LESS: DEDUCTIONS:

RENT 17000

UTILITIES 6800

SUPPLIES 2000

INSURANCE 5500

MACHINE 22000

COMPUTER 13000

STATE I TAX 3218

MORTGAGE INTEREST 5000

PROP TAX 2000

CHARITABLE CONTBN 500

SALES TAX 532

GROSS INCOME 11450

INTEREST INCOME 300

TOTAL INCOME 11750   

TAX LIABILITY = 0.10*9525 + 0.12(11750-9526) = 1219.38

less: FEDERAL INCOME TAX PAID 1300.00

REFUND =1300-1219.38= $ 80.62

NOTE : Section 179 of the IRS tax code states that all businesses are allowed to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year upto $ 2500000 Therefore, if WE buy (or lease) a piece of qualifying equipment, WE can deduct the FULL PURCHASE PRICE from our gross income. It’s an incentive given by the U.S. government to encourage businesses to buy equipments and invest in themselves.