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
Key Assignment Draft The owners of The Car Wash have asked you to
December 31, 20XX
|Licenses and fees||7,260|
|Salaries and wages||67,460|
|Repairs and Maintenance||20,674|
|Net income before taxes||26,835|
|January 1, 20XX||December 31, 20XX|
|Buildings and other depreciable assets||555,000||555,000|
|Liabilities and equity|
|Total liabilities and equity||$521,138||
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:
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.
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).
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)
- 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
- 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)