Corporate Tax Return Project
Using the following information, prepare a corporate tax return for 2015. You can download the tax forms from the IRS website (www.irs.gov). In addition to the basic Form 1120 (all 5 pages), you will need to complete Schedules D and G, and Forms 1125-A, 1125-E, 4562, 4797 and 8949. Also include a "white paper schedule" showing the details when several items need to be added together but the forms do not have space to report the detail or anywhere the forms state "attach schedule" (such as "other deductions on line 26 of the Form 1120). Also include your multi-column book-tax reconciliation showing how you determined the items that are reported on Schedule M-1.
Miami Diving & Fishing, Inc. is located at 1234 South Dixie Highway, Miami, Florida 33156. The corporation uses the calendar year and accrual basis for both book and tax purposes. It is engaged in the retail sale of diving and fishing equipment. Its employer identification number is 65-1234456. It is not a subsidiary or member of a controlled group and does not own any foreign entities. The company incorporated on December 31, 2011 and began business on January 1, 2012.
The book balance sheet at January 1, 2015 and December 31, 2015 are included in a separate excel file along with the book income statement for 2015.
Inventory and cost of goods sold: The corporation uses the periodic inventory method and prices its inventory using the lower of FIFO cost or market. Only beginning inventory, ending inventory, and purchases should be reflected on Form 1125-A. No other costs or expenses are allocated to cost of goods sold. (The corporation is exempt from the UNICAP rules of Sec. 263A because average gross income for the previous three years was less than $10 million.) There was no write-down of subnormal goods. There was no change in determining quantities, cost or valuations between opening and closing inventory.
Organizational expenditures: The corporation incurred $11,000 of organizational expenditures on January 1, 2012. For book purposes, the corporation expensed the entire amount in 2012. For tax purposes, the corporation elected under Section 248 to deduct $5,000 in 2012 and amortize the remaining $6,000 over 180 months. Amortization is reported on Form 4562 and with "other deductions" on Form 1120.
Bad Debts: For tax purposes, the corporation uses the direct write off method of deducting bad debts. For book purposes, the corporation uses the allowance method. During 2015, the corporation charged $36,000 to the allowance account; this is the amount of actual write offs for 2015.
Compensation of Officers:
|
|
Social security
number
|
Country of
citizenship
|
% of time devoted
to business
|
% of common
stock owned
|
Amount of
compensation
|
|
Karina
|
156-33-9988
|
USA
|
100%
|
30%
|
$170,000
|
|
Tara
|
123-65-6622
|
USA
|
100%
|
25%
|
144,000
|
|
Taylor
|
168-59-6543
|
USA
|
100%
|
25%
|
144,000
|
|
Jillian
|
154-66-1234
|
USA
|
100%
|
20%
|
119,000
|
|
Total
|
|
|
|
|
$577,000
|
Capital gains and losses: The corporation sold 2,000 shares of Miami Construction Corporation common stock on October 2, 2015 for $155,000. The corporation acquired the stock on November 18, 2014 for $105,000. The corporation also sold 1,000 shares of Miami Boating Corporation stock on September 23, 2015 for $48,000. The corporation has purchased this stock on November 18, 2012, for $63,000. The broker provided a Form 1099-B that included all stock sales proceeds and basis information to the IRS for the stock acquired in 2014. For the stock acquired before 2014, the Form 1099-B provided sales proceeds information but did not provide basis information to the IRS. The corporation also has a $20,000 capital loss carryover from 2014.
Fixed assets and depreciation: For book purposes, the corporation uses straight-line depreciation over the useful lives of assets. This is reflected in the book financial statements. For tax purposes, all assets are MACRS property. The corporation acquired the building (39-year nonresidential real property) for $1,500,000 and placed it in service on January 2, 2012. The corporation acquired specialized equipment for $800,000 and multi-purpose equipment for $400,000 and placed them in service on January 2, 2012; all of this equipment is 7-year property. The corporation acquired the trucks (5-year property) for $200,000 and placed them in service on July 6, 2013; the trucks are not listed property and not subject to the ceiling limits. The corporation did not elect Section 179 expensing or take any bonus depreciation on any of the property acquired before 2015. Tax depreciation for these assets is as follows:
|
Asset
|
Accumulated depreciation
through 12/31/2014
|
Tax depreciation
expense for 2015
|
|
Building
|
$113,835
|
$38,460
|
|
Trucks
|
104,000
|
38,400
|
|
Specialized equipment
|
450,160
|
99,920
|
|
Multi-purpose equipment
|
225,080
|
24,980
|
On October 1, 2015, the corporation sold the multi-purpose equipment for $425,000; tax depreciation expense on this equipment until disposal in 2015 is $24,980.
On October 5, 2015, the corporation purchased and placed in service some new specialized equipment (7-year property) costing $1,600,000. The corporation elected Section 179 expensing for this equipment but elected not to claim any bonus depreciation. This is the only asset acquired in 2015. (Note that the sale and purchase of equipment in 2015 do not qualify for the like-kind exchange provision.)
Other information:
- The corporation does not qualify for the domestic production activities deduction.
- The corporation received dividends from taxable, domestic corporations in which it owns 10%.
- The corporation paid $90,000 in cash dividends to its shareholders during 2015 and charged the payment directly to retained earnings. This was considered a dividend paid out of earnings & profits for tax purposes.
- The corporation made estimated federal income tax payments of $928,000 during 2015.
- The state income tax shown in the book financial statements is the same amount of taxes actually incurred during the year.
- Ignore the AMT and accumulated earnings tax.
- The corporation is not entitled to any tax credits.
- The corporation had no Section 1231 gains or losses in prior years and no net operating losses.
- The corporation did not issue any debt instruments with original issue discount.
- The corporation is not required to file Schedule UTP.
- The corporation did file all appropriate Forms 1099 for the year.
- The corporation did not have any change in ownership during the year and did not dispose of more than 65% of the value of its assets.
- The corporation did not receive any assets in a Section 351 transfer with a FMV in excess of $1 million.
- You do not need to compute any underpayment tax penalties for this tax return and can ignore the financial statement impact of any underpayment penalties.
This is a group project. You may work on this in groups of 3-5 students per group (no smaller and no larger). You are to submit one paper tax return with all required schedules. You may not consult anyone other than your group members in working on this project.
Attachment:- corporatetaxreturn.xlsx