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John and Ellen Brite are married, file a joint return, and are less than 65 years old. They have no dependents and claim the standard deduction. John owns an unincorporated specialty electrical lightning retail store, Brite-On. Brite-On had the following assets on January 1, 2022:

Assets Cost

Old store building purchased April 1, 2007, $100,000

Equipment (7-year recovery) purchased January 10, 2017, $30,000

Inventory valued using FIFO method: 4,000 light bulbs $5/bulb.

Brite-On purchased a competitors store on March 1, 2022, for 206,000. The purchase price included the following:

New store building $115,000 (FMV)

Land 28,000 (FMV)

Equipment (5-year recovery) 45,000 (FMV)

Inventory: 3,000 light bulbs $6/bulb (cost)

On June 30, 2022, Brite-On sold the 7-year recovery period equipment for $12,000. Brite-On leased a car for $860/month beginning on June 1, 2022. The car is used 100% for business. Brite-On sold 8,000 light bulbs at a price of $15/bulb during the year. Also, Brite-On made additional purchases of 4,000 light bulbs in August 2022 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 $94,000

Interest expense on business loans 6,000

Auto expenses (gas, oil, etc.) 4,800

Taxes and licenses 3,300

Utilities 2,800

Salaries 36,000

Ellen receives $42,000 of wages from employment elsewhere, from which $4,000 of federal income taxes were withheld. John and Ellen made four $3,100 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 2017: The Brites elected out of bonus depreciation and did not elect Sec. 179. The half-year convention applies for this property.

Equipment acquired in 2022: The Brites elected Sec. 179 to expense the cost of the 5-year equipment.

Assume that the lease inclusion rules require that Brite-On reduce its annual deductible lease expense by $41.

Compute Cost of Goods Sold, Depreciation for 2022; Lease Expense Deduction; and Gain/loss on sale of 7-year equipment.

Compute the Brite's taxable income and balance due or refund for 2022

CALCULATE DEPRECIATION FOR 2022

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