Tax Accounting
Assignment Details:
• Please use the information below to prepare a 2015 Federal individual income tax return with any required attachments or schedules.
• The work is to be done in your chosen groups (max of 2), if you desire, and each group is only required to turn in one project.
• Turn in all relevant completed forms and schedules, and any calculations if they are not already apparent in the form. Presentation is important. There has to be enough evidence of your work so the partner on the account can review the tax return. Add any schedules you deem appropriate to help the reviewer follow any calculations you make.
• Round any numbers to whole dollars (including the Total Tax).
• Please download the following forms from the IRS website: (https://apps.irs.gov/app/picklist/list/formsPublications.html)
o Form 1040 o Schedule A o Schedule B o Schedule C o Schedule D o Schedule E
o Schedule SE
o Form 4562 (depreciation related to the Schedule C)
Facts:
Johan (age 34) and Pearl (age 31) Bear are married and file a joint tax return. (Your firm is preparing the return.) They reside at 123 W. Main Street, Bearville, PA 12345, with their 5- year-old son Robert and 3-year old son Rupert. Their Social Security numbers are listed below:
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Johan
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123-45-6789
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Pearl
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987-65-4321
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Robert
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456-78-9012
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Rupert
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789-12-3456
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(Ignore any tax credits that may apply)
Pearl is a medical transcriptionist and her wages are $60,000 of which $15,000 is withheld for the IRS and $3,000 is withheld for the State of Pennsylvania Dept. of Revenue.
The Bears have earned the following interest during 2015:
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U.S. Treasury bonds
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$ 9,000
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Heartland Bank Savings Account
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$ 1,000
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City of Champaign Bond
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$40,000
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The Bears have earned the following qualified dividends during 2015: Apple $ 4,000
IBM $ 1,000
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Medical expenses
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$ 8,000
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Charitable contributions - cash
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$ 1,600
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Home Mortgage Interest
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$25,900
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Property Taxes on Home
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$12,000
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Other expenses incurred by the Bears in 2015 are as follows (before any floors/ceilings):
Johan owns a machine shop (sole proprietorship) called "Midwest Custom" that specializes in restoring old Ford automobiles (mostly Mustangs and Broncos) and had the following revenues and expenses (don't worry about cost of goods sold) for 2015 (accrual basis):
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Gross income
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$500,000
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Advertising
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$ 1,000
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Telephone/Utilities
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$ 500
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Libel insurance
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$ 500
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Office expenses/supplies
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$ 2,000
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Repairs
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$ 250
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Supplies
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$20,000
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Rent (building)
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$12,000
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The machine shop is located at 123 New Blvd., Bearville, PA 12345. During 2015 he purchased a new CNC machine (7-year asset) for $500,000 on July 1, 2015 and elected to expense the maximum amount under Section 179 (he did not elect out of Section 168(k)). This was the only asset purchased during 2015.
The Bears also own a rental office building at 124 New Blvd., Bearville, PA 12345. During 2015, the property had the following income and expenses:
Gross rental income $100,000
Total cash inflow $100,000
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Advertising
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$ 2,000
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Legal fees
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$ 200
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Insurance
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$ 2,500
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Interest expense on Loan
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$ 13,000
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Principal payments on Loan
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$ 25,000
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Supplies
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$ 3,000
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Repairs
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$ 20,000
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Real Property Taxes
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$ 10,000
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Utilities
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$ 7,500
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Total cash outflow
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$ 83,200
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The Bears paid $2,000,000 for the office building on August 2, 2005, the same date it was placed into service. They allocated the purchase price between the land and the building as follows:
Building $1,500,000
Land $ 500,000
During 2015, the Bears sold the following stock investments:
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Stock
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Date of Purchase
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Date of Sale
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Cost
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Sale Proceeds
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100 shares of
Kramerica, Inc.
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6/30/11
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5/15/15
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$1,000
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$1,300
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500 shares of
Peterman, Inc.
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3/20/15
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8/31/15
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$5,000
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$2,000
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250 shares of
Newman Corp.
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9/19/07
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9/30/15
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$2,500
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$1,200
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1,000 shares of
Bosco Corp.
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2/15/15
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3/1/15
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$1,000
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$700
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3,000 shares of
Puddy, Inc.
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11/9/10
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11/9/15
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$6,000
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$8,500
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The Bears have $250 of long-term capital loss carry-forwards. The Bears have $1,000 of short-term capital loss carry-forwards.
During 2015, the Bears made estimated tax payments of $7,000 to the IRS. Don't worry about underpayment penalties, if an underpayment exists.