ACCT 3307/5311 – Income Tax Accounting
Group Case #2 – MUST BE COMPLETED USING A SPREADSHEET PROGRAM
Facts
Michael and Cathy Misenti provide you with the following tax information for calendar year 2012. Michael and Cathy have two dependent children under the age of 12.
Salary from Cathy’s Job as a pharmacist $195,000
Salary from Michael’s Job as a Plumber$87,000
Interest Income$14,250
Dividend Income$8,650
Short term Capital gains$14,750
State of Oregon Municipal Bonds$12,275
Annuity payments received (annuity cost $30,000, expected return $75,000)$16,000
Alimony paid by Cathy to her ex-husband$15,000
Alimony received by Michael from his ex-wife$22,000
Sole Proprietorship Information - Michael (Tax Consulting)
Net Profit before depreciation$885,000
New Asset Acquisitions
Machinery – 6/15/12$160,000
Computer– 06/15/12$360,000
Office Equipment (business machine) – 06/15/12$262,000
Storage Facility (i.e. Real Prop) for files (excluding land) – 9/1/12$385,000
Michael wants to maximize his depreciation using Section 179– Remember depreciation of the business is deducted on Schedule C.
Other Information
Partnership K-1 for Cathy -Misenti Supply Company - Ordinary Income $53,000 (Active participation), LLC K-1 for Michael (Active taxed the same as a partnership) $55,000 income
S Corporation K-1 for Michael (Active), Income = $33,000.
Other Information
Family Moving expenses to relocate from TX to NV$12,000
Mortgage Interest (Primary Mortgage – Principal 800K)$79,000
Mortgage Interest – home equity (Principal 300K)$17,000
SEP Contribution for Michael’s business $15,500
State and Local taxes$10,000
Personal property taxes (on value of car)$700
Charity (cash)$15,000
Medical expenses paid to doctors & hospitals (not elective)$18,000
Investment interest expenses$47,750
Unreimbursed employee business expenses$18,000
Other Transactions (in all cases depreciation for the year of sale is already done)
- Michael sold his investment in VB Co. for $40,000. He originally invested $165,000 in the company that qualified as a Sec. 1244 company. He purchased the stock in 1995 and sold it in 2012.
- Michael sold his investment in Dynegy on 6/15/2012 that he purchased on 1/5/2012. He bought the stock for $3,875 and sold it for $10,000.
- On 2/1/12 Michael sold the old storage facility and purchased a new one (shown above). Michael received $105,000 cash and the buyers assumed the remaining $15,000 loan on the building. He originally purchased the building for $38,000. As of the date of sale, he had taken $12,000 of tax depreciation. He also paid the real estate agent 6% of the sales price as a commission.
- On 1/15/12, Michael sold his old office furniture. He was paid $17,000 for the furniture. Michael originally purchased the assets in 2008 for $14,000 and elected Sec. 179 expense for the asset.
- On 3/15/12 Michael and Cathy sold there home that they used their principal residence for 2 years without interruption. They sold the home for $175,000. He originally purchased the home for $265,000 in 2004.
- On 8/4/12 Cathy sold her complete ownership in Yahoo Inc. She bought the stock for $8,350 in 1995 and sold it for $28,000.
- Michael has not had any Sec. 1231 transactions in the last 5 years.
- In May 2012, Michael sold stock in JAK Inc. for $40,000. He acquired this stock from his sister. His tax basis in the stock was $28,000. However, his sister sold it to them at a loss of $14,500.
Required
- Create a schedule of all sales and exchanges of property transactions and label them accordingly (e.g., Sec. 1231 gains/losses, Long-term capital, Sec. 1245 recapture, etc.)
- Calculate the depreciation deduction on the 2012 asset acquisitions.
- Calculate the Schedule C net income for the Misenti’s
- Calculate the Self Employment tax for the for the Misenti’s
- What is the Misenti’s total Gross Income ? -
- What are the Misenti’s deductions for AGI and his Adjusted Gross Income-
- What are the Misenti’s Itemized Deductions
- What is the Misenti’s total tax liability (be sure to show your work here).