Question

Lily Tucker (single) owns and operates a bike shop as a sole proprietorship. In 2021, she sells the following long-term assets used in her business: Asset Sales Price Cost Accumulated Depreciation Building $ 232,800 $ 202,800 $ 54,800 Equipment 82,800 150,800 25,800 Lily's taxable income before these transactions is $193,300. What are Lily's taxable income and tax liability for the year

Answer 1

Lily’s taxable income for the year is $235,900, and her tax liability for the year is $45,152.50.

Calculation of taxable income and tax liability

Note: See the attached photo for the proper arrangement of the table in the question.

These can be calculated as follows:

Profit on building = Sales price of building – (Cost of building – Accumulated Depreciation of building) = $232,800 – ($202,800 - $54,800) = $84,800

Loss on equipment = (Cost of equipment – Accumulated Depreciation of equipment) - Sales price of equipment –= ($150,800 - $25,800) - $82,800 = $42,200

Net profit = Profit on building - Loss on equipment = $84,800 - $42,200 = $42,600

Taxable income before transaction = $193,300

Total taxable income = Taxable income before transaction + Net profit = $193,300 + $42,600 = $235,900

In line with the tax rules, we have:

Tax Liability = ((Taxable income before transaction - $85,650) * 28%) + ((17,442 + Net profit) *25%) = (($193,300 - $85,650) * 28%) + (($17,442 + $42,600) *25%) = $45,152.50

Learn more about taxable income here: https://brainly.com/question/17961582.

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