Prepare a list bullet point is fine of any carryforwards

Question

Assignment: Corporate Tax Return Project

Instructions:

When you began your own business, you quickly decided to incorporate to obtain limited liability. At that time, you joined together with a college acquaintance, who brought additional expertise and needed capital to the business. With both of you as owners, business is booming. Please choose one person from the class as your business partner for this project. Choose one company (yours or your partner's) to represent the company name and business product for this project. Each team project should represent the work of only that team.

The 2014 financial statements for your business were recently completed (see attached).

1. Using the taxable income from the spreadsheet in Part I, prepare the tax year 2016 Form 1120 Corporate Federal Income Tax Return.

• If you have a question about any line item of the tax form, you should download and read the instructions to the forms. You can get these from www.irs.gov. If you still have a question after reading the instructions and all of the helpful hints at the end of the project, please feel free to ask me.

2. Prepare a list (bullet point is fine) of any carryforwards and/or carrybacks the company has and to what years each item may be carried forward or back.

3. Perform a self-review:

• The numbers on page 1 of your tax return should equal the numbers on the last column of your spreadsheet (the taxable income column).

• Taxable income (before NOLs and DRDs from page 1, line 28 of the tax return) should appear on Schedule M-1, line 10. Book income from your financial statements (after tax) should appear on Schedule M-1, line 1. If one of these numbers is off, then your adjustments on Schedule M-1, lines 2 through 9, were not entered correctly. Make sure all of the adjustments from the middle column on your spreadsheet from Part I (except DRDs) are entered correctly.

Helpful Information for preparing the tax return forms:

• You will need to calculate "purchases" for Schedule 1125-A, line 2, of Form 1120 based on the information you have for beginning and ending inventory.

• You should complete and attach Form 4562 to report the tax depreciation. The total tax depreciation will also be reported on line 20 of Form 1120.

• You should complete and attach Form 4797 to report the gains or losses from the sale of business assets. The total of these gains or losses will also be reported on line 9 of Form 1120. Pay close attention to page 1 of the instructions for Form 4797 and where to first report the sale - Part I, Part II, Part III.

• You should complete and attach Schedule D to report the gains or losses from the sale of capital assets. The total of these gains or losses will also be reported on line 8 of Form 1120.

• You should complete and attach Schedule 8903, Domestic Production Activities Deduction, to report the DPAD deduction on line 25 of Form 1120.

Your company's information:

Your company is owned equally by you and your partner. One of you is the president and the other is the vice president. You both devote 100 percent of your time to the business, and you each earn a salary of $225,000. Assume your company's employer identification number is 35- 4545454, and the calendar year is used for tax purposes. The date of incorporation was January 15, 2014. Please use 111-11-1111 and 222-22-2222 for social security numbers.

The corporation files its tax return on the accrual method. Assume you have inventory. This inventory is determined using the lower of cost or market method. Section 263A rules do not apply. Assume costs of labor and other costs are zero for purposes of the cost of goods sold schedule. LIFO was not used, and there were no changes in determining opening and closing inventory. Your company has no interest in or authority over any foreign bank account or other foreign assets.

The corporation's balance sheet and income statement for 2016 are included below:

Balance Sheet As of December 31, 2016
Assets	January 1, 2016	December 31, 2016
Cash	275,000	310,000
Accounts Receivable	475,000	327,000
Inventory	975,000	945,000
Investments	13,250	10,000
Buildings and Machinery	446,500	432,500
Land	200,000	200,000
Accumulated Depreciation	(75,255)	(102,850)
Other Assets	304,505	761,198
Total Assets	2,614,000	2,882,848
Liabilities and Equity
Accounts Payable	410,000	375,000
Notes Payable - current	100,000	100,000
Notes Payable - noncurrent	550,000	475,000
Common Stock	500,000	500,000
Additional paid in capital	800,000	800,000
Retained Earnings	254,000	632,848
Total Liabilities and Equity	2,614,000	2,882,848

Income Statement for the year ending December 31, 2016
Sales		5,743,921	(1)
Cost of goods sold		4,020,745
Gross Profit		1,723,176
Operating Expenses
Officer Salaries	450,000
Other Salaries	368,000
Interest expense	24,000
Penalty for late filing of tax return	500
Advertising expense	30,000
Charitable contributions	80,000	(2)
Depreciation	27,595	(3)
Payroll taxes	62,577
Repairs and Maintenance	6,450
Meals and Entertainment expense	6,500
Insurance	7,500	(4)
Total operating expenses	(1,063,122)
Net income form operations		660,054
Other income or loss
Interest Income		7,500	(5)
Dividend income		3,755	(6)
Gain/(Loss) on sale of equipment		2,500	(7)
Gain/(Loss) on sale of business automobile		(179)	(7)
Gain/(Loss) on sale of investment in stock	6,000		(8)
Total other income or loss	19,576		(9)
Net income (loss) before tax		679,630
Federal income tax expense		(210,782)	(10)
Net Income		468,848

Additional information pertaining to the company:

1. Your company had $5,743,921 of income from qualified domestic production activities, and $4,416,340 of expenses (COGS, salaries other than officers, and depreciation) related to these activities.

2. Your contributions were to qualified charities and were made in cash.

3. You calculate tax depreciation for the year to be $23,743. The detail for depreciation is provided below:

Asset	Cost	Placed in Service	Convention	TAX Depreciation 2015	TAX Accumulated Depreciation as of 12/31/14	BOOK Depreciation 2015
Building	310,000	2/15/12	MM	7,949	22,863	7,750
Automobile 1	27,000	2/15/12	HY	888	10,910	2,571
(100% business)
Automobile 2	30,000	1/15/14	HY	3,160	-	4,286
(100% business)
Software	3,500	2/15/12	SL	97	3,403	700
Computers	25,000	2/15/12	HY	2,880	17,800	3,571
(not listed property)
Equipment 1	17,000	2/15/12	HY	979	12,104	1,417
Equipment 2	21,000	2/15/12	HY	2,419	14,952	3,000
Furniture	43,000	2/15/12	HY	5,371	24,196	4,300
Total	476,500			23,743		27,595

* The company bought one asset in 2016, an automobile. Also, note that some of your equipment and an automobile were also sold in the current year (see number 7).

4. Included in insurance expense is $3,000 in premiums on you and your partner's lives.

5. Included in the $7,500 of interest income is $2,100 interest income from The City of Coral Gables bonds.

6. Dividend income is from the company's <20% ownership of Pfizer stock.

7. The company sold the following business assets during the current year:

Asset	Purchase Date	Sales Date	Sales Price	Original Cost	BOOK Accumulated Depreciation	BOOK Gain or Loss
Automobile 1	2/15/12	8/15/16	13,000	27,000	13,821	(179)
Equipment 1	2/15/12	7/15/16	11,000	17,000	8,500	2,500

* You must calculate the TAX gain or loss on these assets and you may have a book-tax difference for the gain/loss.

8. The gain on the sale of stock was due to the 3/15/16 sale of shares of Delta Airlines common stock for $9,250. The stock had been purchased on 2/20/10 for $3,250.

9. The company has a capital loss carryforward from 2015 in the amount of $8,000.

10. The tax expense is the amount that was accrued for financial statement (book) purposes. This is not a check figure (i.e. it does not indicate the amount of tax you will compute on your tax return.)

11. Your company made equal quarterly estimated tax payments for 2016 totaling $216,000 ($54,000 each quarter). This estimate was based on 100% of its prior year's tax.

12. You and your partner (the shareholders) withdrew $45,000 each during the year. These payments are properly classified as dividends, and the amounts were not in excess of the company's earnings and profits.