Corporation income taxation
Summer II semester 2020
Income tax project
The Income Tax Return may be prepared manually or using the PROSERIES (TURBOTAX) software (or some other Federal Income Tax (or Information) software that you may have access to) that is located on the Network System in the Computer Center on the Eight floor (South) at the University Of Houston-Downtown Campus (and the second floor classrooms in the Shea Street College Of Business Building) (or on the personal computers at UHD-Northwest at Lone Star College-University Park).
If you choose to prepare the Income Tax (or Information) Return using the ProSeries (TurboTax) software in the Computer Center (or at UHD-Northwest at Lone Star College-University Park), the following information applies. The ProSeries (TurboTax) software may be accessed from any personal computer in the Computer Center that is connected to the Network System at the University Of Houston-Downtown Campus (or on the personal computers on the personal computers at UHD-Northwest at Lone Star College-University Park).
Please bring a device to the Computer Center in order to save your data. (Please be sure that the device is capable of saving your data). To assist you in using the ProSeries (TurboTax) software, an operator’s manual is available in the Computer Center (or at UHD-Northwest at Lone Star College-University Park). Below is a listing of basic instructions in operating the software.
INSTRUCTIONS
Click on START and enter “PROGRAMS” and locate “ProSeries 2019”. Click on “2019 ProSeries”. The software will appear on the screen.
CREATING CLIENT/INPUTTING DATA
Click on “New” to create a new client. You will select the type of Income Tax Return. Choose the Income Tax Return for which of the three (3) options that you choose to prepare an Income Tax Return. After selecting a type of Income Tax Return, the first document that you will enter (automatically appears on the screen) will be the “Information Worksheet” (preceded by the name of type of Return chosen, i.e. Partnership, etc.). Complete all necessary information on the “Information Worksheet”. To enter specific tax related information, you must enter the form, schedule or document that relate to the tax related information you wish to enter. Much of the information will be entered on the forms labeled page 1-2. To go to a specific Form or document, you may either click on “Forms” (and then click on “Select Form”), hit the “F6” key or hit “Control F” then highlight the desired Form, Schedule or document (or press the lighted letter(s) and/or number(s) of the desired Form, Schedule or document) and press return (enter).
WORKSHEETS
In many cases, information may (or must) be entered into a worksheet which is automatically transferred to where needed in the respective Income Tax Returns. This is especially true for Form 1065 (Partnership Return) for entering information on partners, etc. Accordingly, pay attention to the many worksheets that are available for the Return you are preparing to see if certain information may (or must) be entered through a worksheet instead of directly in the Forms and/or Schedules of the Income Tax Return itself.
DEPRECIATION
To enter depreciation information, either click on “Forms” (and then click on “Select Form”), hit the “F6” key or hit “Control F” and enter the “Depr Entry Wks”. Enter a description of the asset to be depreciated and press return (enter). Highlight the Form or Schedule the asset relates to (for Partnerships and S Corporations) and press return (enter). Complete the necessary information at the top of the “Asset Entry Worksheet”. The computed depreciation will automatically be transferred to the appropriate Form or Schedule that the asset relates. (If the Form or Schedule that the asset relates has not been previously created (for Partnerships and S Corporations), you will be asked to create the Form or Schedule at this time).
PRINTING
To access the print commands, press “Control P” and click on “Tax Returns” then press return (enter) to print the entire Tax Return. If you desire to print one (1) Form or Schedule at a time, click on the printer on the tool bar with the red arrow, then click on “Choose” and select the desired Form or Schedule to print.
FACTS
Valerie Lawson and Clara Norman are the sole equal shareholders in the corporation of Lawson And Norman Enterprises, Inc. The corporation, which is a retail office supplies and stationery store, began its operations on January 2, 1985 (also date of incorporation). For Federal Income Tax purposes, the corporation is a calendar year taxpayer and uses the Accrual Method of Accounting.
Its Employer Identification Number is 76-1234567, address is 4369 Robbie Lane Houston, Texas 77026-3915, telephone number is (281) 479-8132, fax number is (281) 567-9024 and E-Mail address is “lawsonandnormanenterprises.com”. The business activity code for the corporation is 453210. Valerie Lawson is the president of the corporation and its contact person for Federal Income Tax purposes and Clara Norman is the secretary and treasurer of the corporation.
Both are full-time employees of the corporation devoting one hundred percent (100%) of their time to the business and each has an annual salary of $75,000. Valerie Lawson’s social security number is 234-56-7890 and her address is 8124 Annette Court Houston, Texas 77031-9475. Clara Norman has social security number of 890-12-3456 and her address is 2716 Nanette Drive Houston, Texas 77061-3459.
FINANCIAL INFORMATION
During the year of 2019, Lawson And Norman Enterprises, Inc. reported the following Income and Expenses (including necessary accruals) for Financial Accounting purposes:
Gross Receipts $1,482,000
Sales Returns And Allowances 109,000
Purchases 510,000
Dividends Received From Stock (Not Qualified Dividends)
Investments in Less Than twenty percent (20%)
Owned United States (U. S.) Corporation 80,000
Interest Income:
Taxable Interest 18,000
Tax-Exempt Interest 7,200
Salaries: Officers 150,000
Other Employees 108,000
Repairs And Maintenance 19,300
Rent Expense - Office 84,000
Rent Expense - Equipment 15,500
Payroll Taxes (Federal And State) 19,600
Interest Expense 25,200
Advertising Expense 33,500
Charitable Contributions 48,000
Legal And Professional Fees 18,000
Depreciation Expense 50,000 *
Utilities Expense 27,300
Employee’s Health Insurance Premiums 14,200
Meals For Clients 5,000
Officers’ Life Insurance Premiums 14,400 **
* - Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for all assets (see specific assets below).
** - Lawson And Norman Enterprises, Inc. Is The Designated Beneficiary.
The Lawson And Norman Enterprises, Inc. owns the following depreciable assets:
ASSET DESCRIPTION DATE ACQUIRED ORIGINAL COST
Automobile – 2018 Lexus 460 April 1, 2018 $ 50,000
(Five-year Property)
Automobile – 2018 Cadillac Seville April 1, 2018 50,000
(Five-year Property)
Furniture And Fixtures May 1, 2017 150,000
(Seven-year Property)
Each automobile was used a total of 18,000 miles during the year of 2019 all which were business miles. The automobiles were not available for personal use during off-duty hours and were used solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified Accelerated Cost Recovery System (MACRS). Section 179 Deduction was not elected in regards to any of these assets nor was Straight-Line Depreciation used.
BALANCE SHEETS
The Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises, Inc. at the beginning and ending of the year of 2019 are as follows:
ASSETS January 1 December 31
Cash $ 36,000 $ 84,000
Trade Notes And Accounts Receivable 96,000 90,000
Inventory (Valued At Cost) * 120,000 100,000
Marketable Securities - Long Term 140,000 170,000
Depreciable Assets (And Land) 260,000 ** 260,000 **
Less: Accumulated Depreciation (65,000) (115,000)
Other Assets (Deposits) 12,000 12,000
———— ————-
TOTAL ASSETS $ 599,000 $ 601,000
======= =======
LIABILITIES AND STOCKHOLDERS’ EQUITY
Accounts Payable (Non-Recourse) $ 96,000 $ 70,400
Federal Income Taxes Payable 8,600 ?
Notes Payable - Short Term (Recourse) 16,000 24,000
Notes Payable - Long Term (Recourse) 164,000 212,000
Common Stock 10,000 10,000
Retained Earnings (Unappropriated) 304,400 279,890
TOTAL LIABILITIES AND ———— ————
STOCKHOLDERS’ EQUITY $ 599,000 $ 601,000
======= =======
* - The rules of Section 263A of the Internal Revenue Code do not apply to the corporation.
** - Includes $10,000 allocated to Land.
ESTIMATED TAX PAYMENTS
During 2019, Lawson And Norman Enterprises, Inc. made the following estimated tax payments:
April 15, 2019 $20,000
June 17, 2019 $16,000
September 16, 2019 $10,000
December 16, 2019 $10,000
The 2018 Federal Income Tax liability for Lawson And Norman Enterprises, Inc. was $52,800 and no overpayment of 2018 Federal Income Tax is being applied to the 2019 Federal Income Tax liability of Lawson And Norman Enterprises, Inc.
OTHER INFORMATION
Both shareholders of Lawson And Norman Enterprises, Inc. are United States Citizens. Lawson And Norman Enterprises, Inc. does not own directly or indirectly fifty percent (50%) or more of the voting stock in any other domestic corporation and the corporation is not a subsidiary in an affiliated group or a parent-subsidiary controlled group. During the year of 2019, Lawson And Norman Enterprises, Inc. paid cash dividends of $280,000 ($140,000 to each shareholder) and the corporation did not pay dividends in excess of the corporation’s Current Earnings And Profits and Accumulated Earnings And Profits. In addition, Lawson And Norman Enterprises, Inc. is not a shareholder in any foreign corporation nor has any interest in or a signature or other authority over any financial account in a foreign country. Furthermore, during the year of 2019, the corporation did not receive a distribution from nor was a grantor of, or transferor to, a foreign trust. Moreover, Lawson And Norman Enterprises, Inc. did not issue publicly offered debt instruments with original issue discount. Finally, the corporation had no Net Operating Losses (NOL’s) carryover from prior tax years.
REQUIRED
Prepare the C (Regular) Corporation Tax Return for the Lawson And Norman Enterprises, Inc. for the tax year of 2019. The following Forms are needed to complete the Tax Return:
Form 1120
Form 1125-A
Form 1125-E
Schedule G (Form 1120)
Form 4562
The Income Tax Return is due on 4, 2020. (PLEASE REMEMBER TO PUT YOUR NAME ON THE PROJECT).
CHECK FIGURES
FORM 1120
INCOME (Page 1)
1. Total Income (Line 11): $941,000.
DEDUCTIONS (Page 1)
1. Charitable Contributions (Line 19): $36,566.
2. Depreciation (Line 20): $58,237. (Also, Line 22 – Form 4562)
3. Total Deductions (Line 27): $611,903.
4. Taxable Income (Line 30): $289,097.
SCHEDULE M-1 (Page 6)
1. Net Income (Loss) Per Books (Line 1): $255,490.
2. Expenses Recorded On Books This Year
Not Deducted On This Return (Itemize) (Line 5): $28,334.
SCHEDULE M-2 (Page 6)
1. Balance At End Of Year (Line 8): $279,890.