John Smith, age 31, is single and has no dependents. At the beginning of 2012, 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 2012, John had the following items in connection with his business:
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Fees for services
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$912,000
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Building rental expense
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36,000
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Office furniture and equipment rental expense
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9,000
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Office supplies
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2,500
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Utilities
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4,000
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Salary for secretary
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34,000
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Salary for equipment operators
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42,000
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Payroll taxes
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7,000
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Fuel and oil for the equipment
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21,000
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Purchase of three new front-end loaders on January 15, 2012,
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for $500,000. John made the election under § 179.
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500,000
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Purchase of a new dump truck on January 18, 2012
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45,000
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During 2012, John had the following additional items:
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Interest income from First National Bank
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$10,000
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Dividends from ExxonMobil
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9,500
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Quarterly estimated tax payments
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11,500
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John does take additional first-year depreciation. On October 8, 2012, 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 $115,000 on December 29, 2012, 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 2012 adjusted gross income. Write a letter to John in which you present your calculations. Also prepare a memo for the tax files.