Question

Sydney operates a small business. She sold some equipment used in her business for $7,500. The equipment had an adjusted basis of $8,000. How will this transaction impact Sydney's tax liability?

Answer 1

Sydney sold business equipment for $7,500 that had an adjusted basis of $8,000, incurring a $500 loss. This loss can reduce her taxable income for the year, potentially lowering her tax liability.

Step-by-step explanation:

Sydney sold some equipment used in her business for $7,500, which had an adjusted basis of $8,000. This transaction will result in a loss of $500 for Sydney since the sales price is less than the adjusted basis. Consequently, this loss can potentially reduce her taxable income for the year because it can be deducted when she calculates her tax liability. The impact on Sydney's tax liability depends on the specifics of her tax situation, including her income level, tax rates, and whether the equipment was used for personal or business use. A business loss such as this can offset other income, resulting in a reduced tax liability.