Question

lily tucker (single) owns and operates a bike shop as a sole proprietorship. in 2022, she sells the following long-term assets used in her business:assetsales pricecostaccumulated depreciationbuilding$ 235,000$ 205,000$ 57,000equipment85,000153,00028,000lily's taxable income before these transactions is $195,500. what are lily's taxable income and tax liability for the year? use tax rate

Answer 1

Lily Tucker has sold two assets for losses, which reduces her taxable income to $128,500. Her tax liability would be based on the tax rate applied to this adjusted income.

Step-by-step explanation:

Lily Tucker is a sole proprietor who has sold two long-term assets used in her bike shop business: building and equipment. To assess Lily's taxable income for the year, we need to calculate the gains on these sales and add them to her reported income before transactions.

The gain on the sale of the building is calculated by subtracting the cost and the accumulated depreciation from the sales price: $235,000 - ($205,000 + $57,000) = -$27,000, indicating a loss. For the equipment, the gain is: $85,000 - ($153,000 - $28,000) = -$40,000, indicating another loss.

Since both transactions resulted in losses, they will reduce her taxable income. Therefore, her adjusted taxable income is: $195,500 (original taxable income) – ($27,000 + $40,000) = $128,500.

The tax liability would depend on the specific tax rate applied to her taxable income, which has not been provided in the question. However, if we had the tax rate, we would apply it to $128,500.