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54. Dennis Harding is considering acquiring a new automobile that he will use 10

ID: 2387040 • Letter: 5

Question

54. Dennis Harding is considering acquiring a new automobile that he will use 100% for business. The purchase price of the automobile would be $35000. If Dennis leased the car for five years , the lease payments would be $375 per month. Dennis will acquire the car on January 1, 2011. The inclusion dollar amounts from the IRS table for the next five years are $40, $87, $130, $156, and $179. Dennis desires to know the effect on his adjusted gross income of purchasing versus leasing the car for the next five years. He elects not to take additional first-year depreciation. Write a letter to Dennis and present your calculations. Also, prepare a memo for the tax files. His address is 150 Avenue I, Memphis, TN 38112.

Explanation / Answer

Purchase – cost recovery deduction

200 6 $35,000x20%= $7,000)   is limited to 2,960 ------------- $ 2,960

2008    $35,000x32%   is limited to $4,800)    ------------------   4,800  

   2009    $35,000x19.2%   is limitedto  $   2,850   -------------  2,850      

   2010   $35,000x11.52%   is limitedto  $   1,675------------1,675

   20011   $35,000x11.52%   is limitedto  $   1,675-------------   1,675      

Total cost recovery deduction ---------------------------------    $ 13,960    

 

 

Lease payments          ($375 x60)   ------------------------------- $22,500

Inclusion of dollar amount = $87, $130, $156, and $179=         $   779

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