Reference no: EM132581455

Richardson Company is in its first year of operations as a hardware and software retailer (with occasional consulting jobs). Richardson reports the following current year results (without respect to the type of entity):

"Business" Income: Sales $490,000;

Gross Consulting Fees Collected $30,000;

Dividend Income (5% investment in Novice Software Co.) $4,000;

Loss on Sale of Novice Stock ($28,000 - $33,000, held 11 months) ( $ 5,000)

"Business" Expenses and Costs:

Cost of Goods Sold (142,200);

Salaries of 5 employees other than owner Tony Richardson ($30,000 x 5 = 150,000) ;

Payroll taxes paid on employees [($150,000 x .0765) + ($35,000 x .062) = 13,645];

Health insurance coverage for employees ($3,000 x 5= 15,000) ;

Retirement plan contributions for employees (10% of salaries) ( 15,000);

MACRS depreciation on various company assets ( 35,748);

Interest, rent, utilities,

insurance, supplies, and miscellaneous expenses ( 59,337);

Contributions to public charities ( 13,300) ;

Compensation to Owners of "Business": Reasonable salary compensation to Tony Richardson ( 65,000);

Other cash payments to owners (20,000);

Health insurance coverage for Tony Richardson ( 3,000);

Retirement plan contribution for owner (10% of "reasonable salary") ( 6,500)

Tony and Ellen Richardson (both age 53) file a joint federal income tax return in the current tax year. They do not have any dependents. In addition to any compensation/income from the business described above, Ellen received a salary of $41,300 from ED Industries. Tony and Ellen also received $1,400 personal interest on a joint account, $1,200 personal dividends from jointly-held Thomson Company stock, and $9,200 from the sale of 100 shares of Thomson stock (originally acquired 5 years ago for $3,100).

Tony and Ellen's personal expenses for the year include $2,600 personal property taxes, $12,400 state income taxes, 10,300 charitable contributions (not including the amounts mentioned above), $8,800 interest on personal home mortgage, and $2,600 of unreimbursed employee expenses by Ellen.

Tony and Ellen's personal expenses for the year include $2,600 personal property taxes, $12,400 state income taxes, 10,300 charitable contributions (not including the amounts mentioned above), $8,800 interest on personal home mortgage, and $2,600 of unreimbursed employee expenses by Ellen.

Question 1: Assuming that Richardson Company is operated as a sole proprietorship, Determine the Richardson's final federal income tax liability