Reference no: EM131328570

Key Assignment Draft

The owners of The Car Wash have asked you to prepare their tax return. Their financial statements are audited by a local certified public accountant (CPA) firm, and they have provided them to you as a reference. A copy of the Income Statement and Balance Sheet have been reproduced below. In your discussion, you obtained the following pieces of additional information to prepare the tax return:

• Name of business owner: Tim Smith, SSN:123-45-6789
• Tim Smith's address: 8765 Warner Street, Huntington Beach, CA 92605
• Name of business owner: Jack Dillard, SSN: 987-65-4321
• Jack Dillard's address: 4321 Courtyard Place, Huntington Beach, CA 92605
• Business Name: The Car Wash
• Business address: 1046 Broadway Street, Huntington Beach, CA 92605
• Business description: Self-Service Car Wash
• Employer Identification Number: 99-8877665
• Date the business started: January 1, 2008
• Business will file its return using the cash basis of accounting

Income Statement

December 31, 20XX

Revenue:
Service Revenue	$254,603
Expenses:
Advertising	2,520
Depreciation	31,250
Insurance	7,260
Interest expense	36,204
Licenses and fees	7,260
Miscellaneous	4,074
Office expense	8,911
Salaries and wages	67,460
Payroll taxes	9,444
Employee benefits	1,349
Professional fees	1,210
Repairs and Maintenance	20,674
Telephone	900
Travel	1,500
Utilities	27,752
Net income before taxes	26,835

Balance Sheet

	January 1, 20XX	December 31, 20XX
Assets
Cash	$28,638	$64,979
Buildings and other depreciable assets	555,000	555,000
Accumulated depreciation	(62,500)	(93,750)
Total assets	521,138	526,229
Liabilities and equity
Loans	183,757	167,962
Mortgage	233,229	227,280
Equity investment	160,000	160,000
Retained earnings	(55,848)	(29,013)
Total liabilities and equity	$521,138	$526,229

Deliverable Length: Prepare the tax return for your client, addressing the following 2 scenarios:
• Scenario 1: The Car Wash is a corporation.
• Scenario 2: The Car Wash is a limited liability company (LLC).

Obtain the appropriate tax return forms at the following Web site and save them to your computer:
www.irs.gov

Instructions for how to prepare the applicable forms are available at the same Web site. You may directly input text and numbers on to these forms using Reader. The forms do not self-calculate. Once complete, upload your tax return to the submitted assignments.

Complete all of the requested attachments for the applicable tax return.

Assume the following:

• The initial investment for each owner was $80,000. Each owner has an equal interest in the business.

• A $30,000 salary was paid to each owner. A part-time employee was paid $7,460.

• The loans and mortgage are long-term obligations.

• The annual tax depreciation on the car wash building is $47,453.

• The $555,000, in its third year of service, property was depreciated for tax purposes using a 15-year recovery period, half-year convention (HY) and the Modified Accelerated Cost Recovery System (MACRS) depreciation method.

• The organization does not have any carry forward net operating losses or tax credits.

• The organization does not qualify for any current year tax credits.

Assume the following for a corporation:

• The corporation made a total of $3,000 in estimated tax payments for the tax year.
• Assume the business owners want to receive any applicable refunds.
• Only common stock has been issued.

Assume the following for a partnership:

• The salary paid to each owner is a guaranteed payment.
• Partnership profit, losses, and capital are shared 50/50.
• The loans and mortgage are both recourse debt.
• The K-1 should reflect the partner's capital account according to the United States' Generally Accepted Accounting Principles (U.S. GAAP).

Please submit your assignment.

For assistance with your assignment, please use your text, Web resources, and all course materials.

Other Information

Instructions:

Review Chapters 17, 18, and 21 on C Corporations and Partnerships in the textbook

For the Partnership (LLC) return, the following items need to be completed

Form 1065 U.S. Return of Partnership Income:

(included within the 1065 are schedules B, K, L. M1 and M2)

Separate forms

• Statement 1; Listing of Other Deductions for the 1065 Page 1 Line 20
• Schedule K1 Partner's Share of Income, Deductions, Credits, etc for Tim/Jack
o You only have to include a single K1 since Tim and Jack are 50/50 partners, their K1's are identical

For the Corporate return, the following items need to be completed

Form 1120 U.S. Corporation Tax Return

(included within the 1120 are schedules J, K, L. M1 and M2)

Separate forms

• Statement 1; Listing of Other Deductions for the 1120 Page 1 Line 26

A total of 5 forms; 1120, 1120 statement 1, 1065, 1065 statement 1, 1065 K1 (Tim/Jack)

Label each form as such "1120;" 1120 statement 1;" 1065;" "1065 statement 1;" "1065 K1 Tim/Jack"

You may NOT use Tax preparation software! Use of software is considered a violation of CTU's Academic Dishonesty Policy and will result in an F for the assignment

The Income Statement and Balance Sheet are the same as in the previous assignments as are the treatment of all financial information. There are some items in the income statement that were only partially or non tax deductible and this has not changed for this assignment.

Salaries to owners are considered "guaranteed payments to partners" or "officer's compensation"

Don't forget the previous IP we did on Schedule M1: recall that not all miscellaneous expenses in the income statement are tax deductible!

Hint; since you're using the same financial statements for both the Corporation and the LLC, should there be a difference in taxable income between these two entities?

Instructor's Comments:

Submitting your 1065 and 1120 - read carefully!

You are responsible for ensuring the forms correctly upload to CTU's website. There have been instances of IRS forms uploading BLANK, with no data! I HIGHLY SUGGEST uploading your forms then taking the time to download them and double-check that the information is still there! Remember that BLANK FORMS YIELD 0 POINTS!

I cannot award points if your forms are blank!

• PLEASE ensure data has been retained when you uploaded your forms to CTU!
• Upload your forms to Submitted Assignments, then download them to doublecheck that your data has been retained in the form.
• This is your responsibility as a student; blank forms will yield zero points! I cannot grade blank forms, nor will you have the opportunity to resubmit forms.

To mitigate the possibility of this happening you have two easy options;

• You may print and scan your Tax Forms and submit the scans (one scan for each form or even all forms in a single scan)

OR

• You make take screenshots of the form using the Windows Snipping tool or other function and paste them into a Word Document

o Ensure you capture the entire form but NOT your entire computer screen; this make it difficult or impossible to read the data on your form, if I can't read the data I can't grade it

• If you submit your forms in either fashion, I do expect that your forms are submitted in order; 1040 page 1, 1040 page 2, 1040 Schedule A

• Do not submit individual screenshots of each page.