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John Rivera, age $31,$ is single and has no dependents. At the beginning of $2024,$ John started his own excavation business and named it Earth Movers. John lives at $1045$ Center Street, Lindon, UT$,$ and his business is located at $381$ State Street, Lindon, UT$.$ The Zip Code for both addresses is $84042.$ John$$s Social Security number is $111-11-1111,$ and the business identification number is $11-1111111.$ John is a cash basis taxpayer. During $2024,$ John reports the following items in connection with his business:

Fee income for services rendered $$912,000$

Building rental expense $36,000$

Office furniture and equipment rental expense $9,000$

Office supplies $2,500$

Utilities $4,000$

Salary for secretary $34,000$

Salary for equipment operators $42,000$

Payroll taxes $7,000$

Fuel and oil for the equipment $21,000$

Purchase of three new front$-$end loaders on January $15,2024560,000$

Purchase of a new dump truck on January $18,202480,000$

During $2024,$ John recorded the following additional items:

Interest income from First National Bank $$10,000$

Dividends from ExxonMobil $9,500$

Quarterly estimated tax payments $11,500$

John wants to maximize his cost recovery deductions $($including taking any $179$ expense and any available additional first$-$year depreciation$).$

On October $8,2024,$ John inherited IBM stock from his Aunt Mildred. John had been her favorite nephew. According to the data provided by the executor of Aunt Mildred$$s estate, the stock was valued for estate tax purposes at $$110,000.$ John is considering selling the IBM stock for $$125,000$ on December $29,2024,$ and using $$75,000$ of the proceeds to purchase an BMW X$5.$ He would use the car $100\%$ for business. John wants to know what effect these transactions would have on his $2024$ adjusted gross income.

Write a letter to John in which you present your calculations. Ignore any Federal self$-$employment tax implications.

SWFT$,$ LLP

$5191$ Natorp Boulevard

Mason, OH $45040$

December $21,2024$

Mr$.$ John Rivera

$1045$ Center Street

Lindon, UT $84042$

Dear Mr$.$ Rivera:

I am writing in response to your request concerning the effects on your $2024$ adjusted gross income of selling IBM stock and using some of the proceeds to purchase an automobile to be used in your business.

If you do not sell the stock and purchase the car, your adjusted gross income will be $fill in the blank $1$

$.$ If you sell the stock and purchase the BMW$,$ your adjusted gross income will

decrease

to $fill in the blank $3$

$.$

Should you want more information or need us to clarify our calculations, please contact us$.$

Sincerely,

Josita J$.$ Sanchez, CPA

Partner

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