BSAD 169 – Individual Taxation Project III
Spring 2019
This assignment requires that you (i.e., no group work) prepare a typed response for one requirement from topics primarily in the second section of the course. The response will need to identify, analyze, and reach conclusions about federal tax issues for an individual taxpayer, based on analyses conducted by you. Your response should include brief, but complete, explanations about how you addressed the issues presented in the requirement as well as your conclusions and/or recommendations. You may consult written materials (including the textbook, supplemental reading materials, and your notes) in preparing your response, but you may not consult other individuals (e.g., other students or professionals). Your score for this assignment will primarily account for the technical analyses in the response as well as the effective expression of those analyses. Accordingly, any explanations and responses/calculations provided in the response should be presented in an organized and well-written manner and should provide enough detail to explain the rationale underlying any conclusions (i.e., do not assume a conclusion is self-evident), including any assumptions. For purposes of your analyses, assume the individual will use a December 31 year end and all acquired assets are new unless stated otherwise. You must submit your response during class on March 27, 2019.
The following page provides factual information about the individual as well as the specific requirement for this assignment. Please read through the entire factual description before attempting to address the assignment’s requirement. Although the requirement asks you to focus on specific issues, you should also raise and discuss any additional issues that a taxpayer would need to consider in making an informed decision about how to report transactions for tax purposes.
Keep in mind that the purpose of this assignment is to enhance your learning through application. This assignment is not an exercise to determine how well you can regurgitate rules. Instead, the assignment is intended to help you think about how rules apply to transactions that, much like reality, interact with other transactions.
BSAD 169 – Individual Taxation Page 2 Spring 2019
Tom operates a sole proprietorship. He had taxable income of $64,082 in 2017 and $31,561 in 2018 from his business before accounting for the events described below:
Tom acquired a delivery van for $37,876 on February 5, 2015, and immediately placed the van into service in his business. He has never used the van for personal purposes.
Tom paid $900 for a laptop computer, which he placed into service in his business on February 11, 2016. He has used the laptop exclusively in his business (i.e., no personal use).
Tom bought a filing cabinet at a cost of $4,300. He placed the filing cabinet into service in the business on January 5, 2017.
Tom purchased a general purpose truck (Old Truck) for $33,200 and placed the truck into service in his business on June 7, 2016. Tom chose not to take bonus depreciation on the Old Truck. On January 8, 2017, Tom exchanged the Old Truck for a different truck (Replacement Truck) in a transaction that qualified as a like-kind exchange (i.e., the exchange occurred before Congress limited like-kind exchanges to real property). On the date of the exchange, the Old Truck had a fair market value of $21,774 and the Replacement Truck had a fair market value of $25,374. As part of the exchange, the other party gave Tom an office chair with a fair market value of $700 and Tom gave the other party $4,300 in cash. The other party had used both the Replacement Truck and the office chair in its business and, since the date of the exchange, Tom has used both the Replacement Truck and the office chair in his business.
Tom spent $332,000 on a retail store building, which he placed into service in his business on April 9, 2017. He sold the retail store building for $322,040 on June 7, 2018.
On May 11, 2017, Tom placed a tablet computer into service in his business. Tom paid $810 for the tablet. He has documentation to show that, during 2017, he used the tablet 100% of the time for business purposes. During 2018, Tom used the tablet 100% of the time for business purposes.
On August 10, 2018, Tom placed a hole-punch machine into service. Tom paid $1,214 to purchase the machine.
Tom placed a sander, which cost $4,870, into service on November 3, 2018.
Finally, Tom placed a trailer into service in his business on December 13, 2018. The trailer cost $18,000. The cost of the trailer is the only amount (from either 2017 or 2018) for which Tom made a section 179 election.
Required: Explain what taxable income Tom had from his business in 2017 and 2018 after accounting for the events described above. For purposes of this requirement, assume that (1) prior to calendar year 2018, Tom took bonus depreciation when allowed (other than for the Old Truck); (2) Tom chose not to take bonus depreciation for any assets placed in service during calendar year 2018; and (3) other than making a section 179 election with respect to the trailer, Tom has not made any other tax elections (e.g., he has not elected to deduct costs under the de minimis safe harbor rules for low-cost personal property).