John and Ellen Brite 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, 2018:
Brite-On purchased a competitor’s score on March 1, 2018,
for $206,000. The purchase price included the following:
On June 30, 2018, Brite-On sold the 7-year recovery period
equipment for $12,000. Brite-On leased a car for $860/monrh beginning on June
1, 2018. The car is used 100% for business and was driven 14,000 miles during
the year. Brice-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
2018 at a cost of $7/bulb. Brite-On had the following revenues (in addition ro
the sales of light bulbs) and additional expenses:
John and Ellen also had some personal expenses:
Ellen receives $42,000 of wages from employment elsewhere,
from which $4,000 of federal income taxes were withhe ld. The Brites received
interest income on a bank savings account of $275 and qua lified dividends of
$1,425 . John and Ellen made four $3,900 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 acqu ired in 2013: The Brires elected out of
bonus deprec iation and did nor elect Sec. 179 . • Equipment acqu ired in 2018:
The Brires elected Sec. 179 to expense the cost of the 5-year equipment. •
Assume that the lease inclusion rules require chat Brite-On reduce its annual
deduct – ible lease expense by $41. Compute the Brice’s taxable income and
balance due or refun d for 2018 .
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