This is the total amount of tax that an entity or organization is under obligation to pay to the tax authority as a result of happening of a taxable event, using the appropriate tax rate.
Gross Income
The computation of the total taxable income begins with the calculation of the gross total taxable income. This includes all the income unless the law permits the exclusion of some specific income (Gibson, 2010)
For the case of Haltom’s, gross income;
Estimate of the Haltom’s Tax Liability with the Sale of the Bowling Alley (Amount in dollars)
Jared’s salary60000
Gross receipts from the day care39600
Sale of business 1200000
Total gross income1299600
Deductions for Adjusted Gross Income
Meals and snacks for the children 5,500
Substitute care paid out throughout the year 2,000
Various purchases for daycare, (toys, arts & crafts materials, and others.) 1,200
Home repairs 1,000
Insurance for business 300
Advertising, (mostly done with free ads on Craig’s list, and others.) 100
Cleaning supplies (shared business & personal) 350
Various certificate of primary education courses 400
Utilities (gas, electric, trash removal, and others. – shared) 2,000
Miscellaneous expenses (fire extinguisher, license, TB tests, and others.) 100
Less: Itemized Deductions or Standard Deductions
Computer1000 * 60/100600
Office furniture1500 * 60/100900
Home mortgage interest expense6,500
Property taxes1,100
Home owner’s insurance350
Charitable contributions (cash)1,000
Charitable contributions (non-cash, all substantiated)500
Tax preparation & consulting 475
Medical expenses – not reimbursed by insurance: 2,000
Less exemptions(3650)
Total deduction(30025)
Net taxable income1,269,575
Taxation
Over $373,650 $101,085.50 plus 35% of the excess over $373,650
Therefore; 1269575 – 373650 = 895925 * 35% = 313573.75 + 101085.50 = 414669.25 dollars
Estimate of the Haltom’s Tax Liability without the Sale of the Bowling Alley
Jared’s salary60000
Gross receipts from the day care39600
Total gross income99600
Deductions for Adjusted Gross Income
Meals and snacks for the children 5,500
Substitute care paid out throughout the year 2,000
Various purchases for daycare, (toys, arts & crafts materials, and others.) 1,200
Home repairs 1,000
Insurance for business 300
Advertising, (mostly done with free ads on Craig’s list, and others.) 100
Cleaning supplies (shared business & personal) 350
Various certificate of primary education courses 400
Utilities (gas, electric, trash removal, and others. – shared) 2,000
Miscellaneous expenses (fire extinguisher, license, TB tests, and others.) 100
Less: Itemized Deductions or Standard Deductions
Computer1000 * 60/100600
Office furniture1500 * 60/100900
Home mortgage interest expense6,500
Property taxes1,100
Home owner’s insurance350
Charitable contributions (cash)1,000
Charitable contributions (non-cash, all substantiated)500
Tax preparation & consulting 475
Medical expenses – not reimbursed by insurance: 2,000
Less exemptions(3650)
Total deduction(30025)
Net taxable income69575
Taxation
Over $68,000 but not over $137,300 $9,362.50 plus 25% of the excess over $68,000
Therefore;
69575 – 68000 = 1575 * 25% = 393.90 + 9362.50 = 9756.40 dollars.
(a) Allocation of the $1.2 million purchase price to each asset
The allocation of the purchase price to each asset is based on the original cost of the respective asset
For the equipments; it will be 700,000/(700,000 + 650,000 + 250,000) = 700,000/1,600,000 * 1,200,000 = 525,000 dollars
For the building; it will be 650,000/1,600,000 * 1,200,000 = 487500 dollars
For the land; it will be 250,000/1,600,000 * 1,200,000 = 187500 dollars
(b) Calculation of the overall gain on the sale of …