Question

On April 23, Mrs. Y purchased a taxi business from Mr. M for a $60,000 lump-sum price. The business consisted of a two-year-old taxicab worth $19,000, Mr. M’s license to operate a taxi business in Baltimore, his list of regular customers, and his registered business name "On Time Any Time Taxi." Mrs. Y operated the business from April 24 through the end of the year.a. Compute Mrs. Y’s taxable income from the taxi business if her taxable income before any cost recovery deductions was $36,890.b. Compute Mrs. Y’s taxable income from the taxi business if her taxable income before any cost recovery deductions was $17,100.

Answer 1

Follows are the solution to the given points:

Step-by-step explanation:

In point a:

It must allocate
`\$19000` for both the taxicab and
`\$41,000` for the rest of the license, the client list, and the company name registered.

Its cost of intangible material could be amortized for 180 months starting in April.
`((41,000)/(180)) * 9\ \ months = \$2,050` is her amortization deduction.

She could also use Section 179 to decrease her taxable money to
`\$17,890 (\$36,890 - \$19,000)` but include her deduction.

Her taxable annual income is
`\$15,840 (\$17,890 - \$2,050)`.

In point b:

They must allocate
`\$19,000` for the taxi and
`\$41,000` for their licenses, the customer list as well as the business by interacting with people register. Its cost of the material could be depreciated for 180 months, starting in April.

`((41,000)/(180)) * 9\ \ months = \$2,050` is her amortization deduction.

The taxable income here
`= \$0 (from \ \$17,100 -\$19,000) = -1,900.`

Section 179 could be requested if another income is earned on the tax return (such as W-2 wages).

As all Section 179 is unpaid with other earned income, it is carried forward into the next year.