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Scenario $3$: The Intangible Asset Dilemma

A small business owner spent $$20,000$ developing a unique software application for internal use.

The company also purchased a patent for $$50,000.$

It incurred $$15,000$ in legal fees related to defending the patent.

Business Income $($excluding the above items$)$: $$150,000$

Interest and Dividend Income: $$800$

Itemized Deductions: $$25,000$

Allowable deduction for self$-$employment tax: $($Calculate based on business income$)$

Questions:

Discuss the tax treatment $($amortization$,$ Section $179,$ etc.$)$ for each of the intangible assets.

Analyze the potential deductions available in the current year.

Calculate AGI, taxable income, and total tax liability.