calculate taxable income for 2005:
this is related informaton given for 2005:
income statement:
sales 41,100
cogs (23,725)
GP 17375
SG&a (15,492)
EBIT 1883
TAXES 25%
Net income 1412
tax issues:
all 2005 assets purchases were made on 9/27/05
no estimated tax payments have been made since inception
use section 179 cost recovery for everything other then the building.
equipment 25,000 esltimed life 10yrs
furniture 4000 life 8 yrs
computers 6000 life 4yrs
To calculate the taxable income for 2005, we will need to consider the relevant information given. Let's break down the steps:
Step 1: Calculate the Depreciation Expenses:
- The equipment with a cost of $25,000 has an estimated life of 10 years. To calculate the annual depreciation expense, divide the cost by the estimated life: $25,000 / 10 = $2,500 per year.
- The furniture with a cost of $4,000 has an estimated life of 8 years. To calculate the annual depreciation expense, divide the cost by the estimated life: $4,000 / 8 = $500 per year.
- The computers with a cost of $6,000 have an estimated life of 4 years. To calculate the annual depreciation expense, divide the cost by the estimated life: $6,000 / 4 = $1,500 per year.
Step 2: Calculate Section 179 Cost Recovery:
- As mentioned, use Section 179 cost recovery for everything other than the building. Section 179 allows businesses to deduct the full cost of qualifying property in the year it is placed into service, rather than depreciating it over several years.
- The equipment, furniture, and computers qualify for Section 179 cost recovery, so you can deduct their full cost in the year they were purchased, which is 2005.
Step 3: Calculate Total Depreciation Expenses:
- Add up the depreciation expenses calculated in Step 1: $2,500 (equipment) + $500 (furniture) + $1,500 (computers) = $4,500.
Step 4: Calculate the Taxable Income:
- Start with the Net Income of $1,412.
- Subtract the Total Depreciation Expenses (Step 3): $1,412 - $4,500 = -$3,088.
Step 5: Adjust for Tax Issues:
- No estimated tax payments have been made since inception, so there are no adjustments needed in that regard.
- The tax rate is given as 25%.
Step 6: Calculate the Tax Liability:
- Multiply the Taxable Income (Step 4) by the tax rate: -$3,088 * 0.25 = -$772. This indicates a tax loss.
In summary, the taxable income for 2005 is -$3,088, which results in a tax loss of -$772. Please note that if the business has any previous years' tax losses, they may be able to carry them forward to offset future taxable income.