Income tax project, Taxation

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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 Employee 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".  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 2012, 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                                                          44,500

                        Charitable Contributions                                                    48,000

                        Legal And Professional Fees                                             28,800

                        Depreciation Expense                                                       50,000 *

                        Utilities Expense                                                               27,700

                        Employee's Health Insurance Premiums                            14,200

                        Entertainment Of Clients                                                     5,000

                        Officers' Life Insurance Premiums                                    14,000 **

-1-

* - 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 - 2011 Lexus 460                            April 1, 2011                            $ 50,000

(Five-year Property)

Automobile - 2011 Cadillac Seville        April 1, 2011                              50,000

(Five-year Property)

Furniture And Fixtures                            May 1, 2010                             150,000

(Seven-year Property)                                                                        

Each automobile was used a total of 18,000 miles during the year of 2012 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 2012 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              $ 116,200

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                  229,042

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.

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ESTIMATED TAX PAYMENTS

During 2012, Lawson And Norman Enterprises, Inc. made the following estimated tax payments:

 

                                                April 17, 2012                         $30,000

                                                June 15, 2012                          $20,000

                                                September 17, 2012                $20,000

                                                December 17, 2012                 $10,000

 

The 2011 Federal Income Tax liability for Lawson And Norman Enterprises, Inc. was $76,800 and no overpayment of 2011 Federal Income Tax is being applied to the 2012 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 2012, 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 2012, 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 2012.  The following Forms are needed to complete the Tax Return:

Form 1120

Form 1125-A

Form 1125-E

Schedule G

Form 4562

Form 4626

INCOME (Page 1)

1.  Total Income (Line 11): $941,000.

DEDUCTIONS (Page 1)

1.  Charitable Contributions (Line 19): $36,566.

2.  Depreciation (Line 20): $36,037. (Also Line 22 - Form 4562)

3.  Total Deductions (Line 27): $611,903.

4.  Taxable Income (Line 30): $273,097.

SCHEDULE M-1 (Page 5)

1.  Net Income (Loss) Per Books (Line 1): $204,642.

2.  Expenses Recorded On Books This Year

     Not Deducted On This Return (Itemize) (Line 5): $41,897.

SCHEDULE M-2 (Page 5)

1.  Balance At End Of Year (Line 8): $229,042.


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