John and Ellen Brite are married and file a joint return. John owns an unincorporated specialty electrical lightning retail store, Brite-On had the following assets on January 1, 2011: Old store building purchased April 1, 1999 $100,000 Equipment ( 7-years recovery) purchased January 10, 2006 30,000 Inventory valued using FIFO method: 4,000 light bulbs $5/bulb Brite-On purchased a competitor's store on March 1, 2011 for $107,000. The purchase price included the following: New store building $60,000 (FMV) Land 18,000 (FMV) Equipment(5-year recovery) 11,000 (FMV) Inventory:3000 light bulbs $6/bulb (cost) On June 30, 2011, Brite-On sold the 7-year recovery period equipment for $12,000. Brite- On leased a $30,500 car for $500/month beginning on January 1, 2011.
The car is used 100% for business and was driven 14,000 miles during the year. Brite-On sold 8,000 light bulbs in august 2011 at a cost of $7/bulb. Brite- On had the following revenues (in addition to the sales of light bulbs) and additional expenses: Service revenues $64,000 Interest expenses on business loan 4000 Auto expenses (gas, oil, etc,) 3,800 Taxes and licenses 2,800 Salaries 24,000 John and Ellen also had some personal expenses: Medical bills $4,500 Real property taxes 3,800 Home mortgage interest 9,000 Charitable contribution (cash) 600 The Brites recived interest income on a bank saving account of $275. John and Ellen made four $5,000 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 acquired in 2006: The Brites elected out of bonus depreciation and did not elect Sec. 179. Equipment acquired in 2011: The Brites elected Sec. 179 to expense the cost of the 5-year equipment but elected out of bonus depreciation. Lease inclusion rules require that Brite-On reduce its deductible lease expense by $15 Compute the Brite's taxable income and balance due or refund for 2011