Question

General

John Jones is married with two children. His family consists of his wife Jen Jones and his children James Jones and Jackie Jones.

This case study is mainly surrounding John’s earnings, but Jen also works and receives a salary of $80,000 which SHOULD be included in the overall taxable income calculation and included on Form 1040

James Jones is 12 years old and lives at home. His parents fully provide for him

Jackie Jones is 23 years old full-time student and lives at school. She has a part time job and earns $4,000 a year. Her parents provide for more than 50% of her support.

For this project please use the 2018 tax forms and tax rates

Please also use the 2019 IRC 179 expense rules and 2019 bonus depreciation and MACRS depreciation rules

Corporation X

See below for Sales, expense and transaction information during the year.

John is an employee at Corporation X and get a salary at $50,000

Assume all taxable income at the end of the year is paid out as a dividend. Assume John owns 5% of the company

Ignore the Domestic Production Activities Deduction (DPAD)

Income and deduction items

                Sales                                                                                         3,000,000

                COGS                                                                                       100,000

                Salaries                                                                                     300,000

Transactions

1/1/2018 Machinery – new                                                         Cost = 1,000,000

1/1/2018 Equipment – New                                                        Cost = 1,200,000

1/1/2018 Machinery – Sold                                                        Cost = 500,000

Cumulative Depreciation = 300,000

                                                                                                   Sale Proceeds = 250,000

1/1/2018 Equipment – Sold                                                       Cost = 600,000

                                                                                                   Cumulative Depreciation = 300,000

                                                                                                   Sale Proceeds = 200,000

1/1/2018 Building – Sold Cost = 750,000

                                                                                                   Cumulative Depreciation = 400,000

                                                                                                   Sale Proceeds = 1,000,000

Requirements

1. Complete Pages 1,3 and supporting Schedules for 2018 Form 1120
2. Calculate the Taxable Income of the corporation and the dividend to be paid

Partnership ABCD

See below for Sales, expense and transaction information during the year.

This is a services-based business John started with his Friends. John owns 25%

John spends 300 hours a year on the business

John receives a guaranteed payment of $10,000 for his services. He is the only partner that receives a GP.

Ignore the Domestic Production Activities Deduction (DPAD) and the 199A deduction

Income and deduction items

                Revenue                                                                                   $80,000

                Guaranteed Payment                                                               $10,000

                Meals and Entertainment expense                                           $10,000

                Interest income                                                                         $ 2,000

Requirements

1. Calculate the Taxable Income of the partnership, and John’s portion of the Taxable Income
2. Complete John’s Schedule K-1 to use for his individual return

Individual Return

                Mortgage interest paid                                                                  $18,000

                Property tax paid                                                                          $ 2,500

                Charitable contributions                                                               $ 1,500

                Municipal bond interest earned stock sale $     500

                Basis                                                                                            $ 1,000

                Proceeds                                                                                      $ 5,000

Requirements

1. Calculate the Taxable Income of the Jones Family
2. Complete the Jones’ Form 1040 and supporting schedules

Answer 1

FACTS :

John Jones: getting income from

1) Corporation x :

a) salary

b) 5% on dividend distributed

2) Partnership ABCD

a) salary :

b) 25% share from profit

3) wife Jen Jones income will be clubbed (joint returns)

4) James Jone is a Qualifying child (considered to be dependent as he is below 19Yrs, no earning, john provides him full support for a living) and claims his income in returns

5) Jackie Jone is a Qualifying Child (considered to be dependent as she is 23Yrs old and a full-time student who is provided with more than 50% of support for living by John) and her part-time earnings will be included in john jones joint returns.

CORPORATION X :

supporting Schedules for 2018 Form 1120 (EXTRACTS)

1a Gross receipts or sales $3,000,000

c Balance. Subtract line 1b from line 1a $3,000,000

2 Cost of goods sold (attach Form 1125-A) $100000

3 Gross profit. Subtract line 2 from line 1c $2900000

8 Capital gain net income (attach Schedule D (Form 1120)) $600000

• Machinery Sold ($250000-$500000+$300000) -$50000
• Equipment Sold ($200000-$600000+$300000) - $100000 (loss)
• Building sold ( $1000000-$750000+$400000) - $650000

11 Total income. Add lines 3 through 10 $3500000

13 Salaries and wages (less employment credits) $300000

20 Depreciation from Form 4562 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) $1000000

30 Taxable income. $2200000

TOTAL DIVIDEND :

Assuming all taxable income at the end of the year is paid out as a dividend. Dividend distributed = taxable Income = $2200000

> John jones will get 5% of dividend distributed and a fixed salary

a) 5% of 2200000 = $110000

b) fixed salary =$50000

PARTNERSHIP ABCD :

a) Revenue                                                                                   $80,000

b) Interest income                                                                         $ 2,000

c) Guaranteed Payment ($10,000)

d) Meals and Entertainment expense ($10,000)

e)Total Revenue (a+b-c-d) $62000

> john will get fixed salary and 25% share from revenue

a) 25% of $62000 = 15500

b) salary = $10000

INDIVIDUAL RETURN DATA

Total Taxable Inome Of Jones Family

A) taxable income of John jones

• corporation X : ($110000+$50000) $160000
• partnership ABCD : ($15500+$10000) $25500
• income of qualified child $4000

Total = $189500

B) Taxable Income if Jen jones = $80000

Total Taxable Income of jones family (A+B) = 269500