ACCT 3307/5307 – 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 2015. Michael and Cathy have two dependent children under the age of 12.

Salary from Cathy’s Job as a pharmacist $382,000

Salary from Michael’s Job as a Plumber$108,000

Interest Income$24,250

Dividend Income$19,650

Short term Capital gains$12,750

State of Oregon Municipal Bonds$15,275

Annuity payments received (annuity cost $40,000, expected return $75,000)$28,000

Alimony paid by Cathy to her ex-husband$30,000

Compensatory and Punitive damages from age discrimination lawsuit$350,000

Portion of damages that represent reimbursement of medical costs$ 40,000 (included above)

Sole Proprietorship Information - Michael (Management Consulting)

Net Profit before depreciation$1,175,000

New Asset Acquisitions

Machinery – 10/15/15$418,000

Cadillac Escalade (less than 6,000 pounds) – 10/15/15$65,000

ComputerNework– 10/15/15$195,000

Office Equipment (business machine) – 10/15/15$283,000

Storage Facility (i.e. Real Prop) for files (excluding land) – 9/1/15$280,000

Michael wants to maximize his depreciation using Section 179 (assume limit for 2015 is $500,000)– Remember depreciation of the business is deducted on Schedule C.

Other Information

Partnership K-1 for Cathy -Misenti Supply Company - Ordinary Income $85,,000 (Active participation), LLC K-1 for Michael $55,000 income

S Corporation K-1 for Michael : Ordinary Income = $73,000.

Other Information

Family Moving expenses to relocate from TX to NV$22,000

Mortgage Interest (Primary Mortgage – Principal 1,200K)$85,000

Mortgage Interest – home equity (Principal 275K)$18,500

SEP Contribution for Michael’s business $49,500

State and Local taxes$12,000

Personal property taxes (on value of car)$1,200

Charity (cash)$120,000

Medical expenses paid to doctors & hospitals (not elective)$183,000

Investment interest expenses$74,750

Unreimbursed employee business expenses$42,000

Other Transactions (in all cases depreciation for the year of sale is already done)

  • Michael sold his investment in VB Co. for $48,000. He originally invested $172,000 in the company that qualified as a Sec. 1244 company. He purchased the stock in 1995 and sold it in 2015.
  • The Misenti’s sold their investment in Scientific Atlanta that the y bought on June 18, 2015 for $4,800 for $7,325 on November 15,2015.
  • On 2/1/15 Michael sold the old storage facility and purchased a new one (shown above). Michael received $295,000 cash and the buyers assumed the remaining $105,000 loan on the building. He originally purchased the building for $80,000. As of the date of sale, he had taken $20,000 of tax depreciation. He also paid the real estate agent 5% of the sales price as a commission.
  • On 1/15/15, Michael sold his old computer system. He was paid $15,000 for the computer. Michael originally purchased the equipment in 2013for $55,000 and elected Sec. 179 expense for the asset.
  • On 3/15/15 Michael and Cathy sold there home that they used their principal residence for 10 years without interruption. They sold the home for $455,000. He originally purchased the home for $620,000 in 2005.
  • On 8/4/15 Cathy sold her complete ownership in Yahoo Inc. She bought the stock for $10,350 in 1995 and sold it for $38,000.
  • Michael has not had any Sec. 1231 transactions in the last 5 years (info for lookback rule).
  • In May 2015, Michael sold stock in JAK Inc. for $50,000. He acquired this stock from his sister. His tax basis in the stock was $30,000. However, his sister sold it to them at a loss of $14,500.

Required

  1. 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.)
  2. Calculate the depreciation deduction on the 2015 asset acquisitions.
  3. Calculate the Schedule C net income for the Misenti’s
  4. Calculate the Self Employment tax for the for the Misenti’s
  5. What is the Misenti’s2015 total Gross Income? -
  6. What are the Misenti’s 2015deductions for AGI and his Adjusted Gross Income-
  7. What are the Misenti’s2015 Itemized Deductions
  8. What is the Misenti’s2015 total tax liability (be sure to show your work here).