Reference no: EM131160705

Tax Accounting
Assignment Details:
• Please use the information below to prepare a 2015 Federal individual income tax return with any required attachments or schedules.

• The work is to be done in your chosen groups (max of 2), if you desire, and each group is only required to turn in one project.

• Turn in all relevant completed forms and schedules, and any calculations if they are not already apparent in the form. Presentation is important. There has to be enough evidence of your work so the partner on the account can review the tax return. Add any schedules you deem appropriate to help the reviewer follow any calculations you make.

• Round any numbers to whole dollars (including the Total Tax).

• Please download the following forms from the IRS website: (https://apps.irs.gov/app/picklist/list/formsPublications.html)
o Form 1040 o Schedule A o Schedule B o Schedule C o Schedule D o Schedule E
o Schedule SE
o Form 4562 (depreciation related to the Schedule C)

Facts:
Johan (age 34) and Pearl (age 31) Bear are married and file a joint tax return. (Your firm is preparing the return.) They reside at 123 W. Main Street, Bearville, PA 12345, with their 5- year-old son Robert and 3-year old son Rupert. Their Social Security numbers are listed below:

Johan	123-45-6789
Pearl	987-65-4321
Robert	456-78-9012
Rupert	789-12-3456

(Ignore any tax credits that may apply)

Pearl is a medical transcriptionist and her wages are $60,000 of which $15,000 is withheld for the IRS and $3,000 is withheld for the State of Pennsylvania Dept. of Revenue.
The Bears have earned the following interest during 2015:

U.S. Treasury bonds	$  9,000
Heartland Bank Savings Account	$  1,000
City of Champaign Bond	$40,000

The Bears have earned the following qualified dividends during 2015: Apple $ 4,000

IBM $ 1,000

Medical expenses	$ 8,000
Charitable contributions - cash	$ 1,600
Home Mortgage Interest	$25,900
Property Taxes on Home	$12,000

Other expenses incurred by the Bears in 2015 are as follows (before any floors/ceilings):

Johan owns a machine shop (sole proprietorship) called "Midwest Custom" that specializes in restoring old Ford automobiles (mostly Mustangs and Broncos) and had the following revenues and expenses (don't worry about cost of goods sold) for 2015 (accrual basis):

Gross income	$500,000
Advertising	$  1,000
Telephone/Utilities	$     500
Libel insurance	$     500
Office expenses/supplies	$  2,000
Repairs	$     250
Supplies	$20,000
Rent (building)	$12,000

The machine shop is located at 123 New Blvd., Bearville, PA 12345. During 2015 he purchased a new CNC machine (7-year asset) for $500,000 on July 1, 2015 and elected to expense the maximum amount under Section 179 (he did not elect out of Section 168(k)). This was the only asset purchased during 2015.

The Bears also own a rental office building at 124 New Blvd., Bearville, PA 12345. During 2015, the property had the following income and expenses:
Gross rental income $100,000
Total cash inflow $100,000

Advertising	$    2,000
Legal fees	$       200
Insurance	$    2,500
Interest expense on Loan	$  13,000
Principal payments on Loan	$  25,000
Supplies	$    3,000
Repairs	$  20,000
Real Property Taxes	$  10,000
Utilities	$    7,500
Total cash outflow	$  83,200

The Bears paid $2,000,000 for the office building on August 2, 2005, the same date it was placed into service. They allocated the purchase price between the land and the building as follows:

Building $1,500,000
Land $ 500,000

During 2015, the Bears sold the following stock investments:

Stock	Date of Purchase	Date of Sale	Cost	Sale Proceeds
100 shares of Kramerica, Inc.	6/30/11	5/15/15	$1,000	$1,300
500 shares of Peterman, Inc.	3/20/15	8/31/15	$5,000	$2,000
250 shares of Newman Corp.	9/19/07	9/30/15	$2,500	$1,200
1,000 shares of Bosco Corp.	2/15/15	3/1/15	$1,000	$700
3,000 shares of Puddy, Inc.	11/9/10	11/9/15	$6,000	$8,500

The Bears have $250 of long-term capital loss carry-forwards. The Bears have $1,000 of short-term capital loss carry-forwards.

During 2015, the Bears made estimated tax payments of $7,000 to the IRS. Don't worry about underpayment penalties, if an underpayment exists.