Note: This problem is for the 2018 tax year. John Smith, age 31, is single and has no dependents. At the beginning of 2018, 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. Johns Social Security number is 111-11-1111, and the business identification number is 11-1111111. John is a cash basis taxpayer. During 2018, 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, 2018, for $560,000 560,000 Purchase of a new dump truck on January 18, 2018 80,000 During 2018, 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, 2018, John inherited IBM stock from his Aunt Mildred. John had been her favorite nephew. According to the data provided by the executor of Aunt Mildreds 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, 2018, and using $75,000 of the proceeds to purchase an Acura ZDX. He would use the car 100% for business. John wants to know what effect these transactions would have on his 2018 adjusted gross income.

Required: Complete a letter to John in which you present your calculations, and prepare a memo for the tax files. Ignore any Federal self-employment tax implications. Enter all amounts as positive numbers. If an amount box does not require an entry or the answer is zero, enter "0".

Need help with bold sentences.

If the stock was sold and the car was purchased, your adjusted gross income would be $ .

The supporting calculations follow.

Business income before deprecation and Section 179 $ 756,500

Less: Depreciation including Section 179 $

Equals: Net business income $

Add: Other taxable income 34,500

Less: Deductions for adjusted gross income $

Equals: Adjusted gross income $