Question

LN Consulting is a calendar year, cash basis unincorporated business. The business is not required to provide audited financial statements to any external user. LN's accounting records show the following:

Cash receipts:   

Revenues from service contracts $292,000

Proceeds from sale of mutual fund shares 18,000

Insurance reimbursement for fire loss 7,000

Cash disbursements:   

Administrative salaries $32,000

Professional fees 800

Business meals 1,090

Business entertainment costs 2,000

State and local business taxes 5,000

Interest expense 7,600

Advertising 970

Office expense 1,200

Office rent 14,400

New office equipment 8,300

LN's records reveal the following facts:

• In December, the bookkeeper prepaid $1,500 interest on a business debt. This interest is related to the next taxable year.
• LN disposed of two assets during the year. It exchanged computer equipment for office furniture. (These assets are not like-kind for federal tax purposes.) The original cost of the computer equipment was $13,000, and accumulated MACRS depreciation through date of exchange was $9,700. The office furniture has a $6,000 FMV. It sold 1,200 shares in a mutual fund for $18,000. LN purchased the shares as a short-term investment of excess working capital. The cost of the shares was $16,600.
• An electrical fire completely destroyed a company car. The adjusted basis of the car was $9,100, and LN's property insurance company paid $7,000 in complete settlement of its damage claim. LN used the insurance money to pay various operating expenses.
• MACRS depreciation for assets placed in service in prior years (including the computer equipment and company car) is $4,600. The only asset acquired this year (in addition to the office furniture) was office equipment costing $8,300. The equipment was placed in service on August 19.

On the basis of these facts, compute the taxable income generated by LN Consulting's activities, before any 20 percent (QBI) deduction that might be available to LN's owners.

Answer 1