Federal Tax

Schedule C Exercise

based on:

Before depreciation expense, what is taxable income for 2022? 839,255822,735801,735818,255 Question 2 Depreciation expense for 2022 is: 8,372165,000 0 173,372 The amount of section 179 expense taken in 2021 was: \begin{tabular}{l} \hline 0 \\ \hline 510,000 \\ \hline 1,765,000 \\ \hline 225,000 \\ \hline \end{tabular} Question 4 Bonus depreciation under section 168(k) taken in 2021 was: 1,781,457510,0001,255,00016,457 MACRS depreciation taken for 2022 is: 8,372 0 173,372 165,000 Question 6 Taxable income for 2022 including depreciation expense is: 818,255839,255644,883665,883 Calvin and his wife Susie live in Watterson, California which is a moderate sized town between Sacramento and Chico. They have been pretty successful in their financial lives over the years and own a number of business ventures. They have two sons, Tomas and John. Tomas (SSN 333-44-9668) was born in December 1999 and John (SSN 444-33-9988) was born a few years later in June 2005. Tomas attends school at Sac State carrying only 9 units each semester in the graduate accounting program so that he can work part time in one of his dad's businesses to earn money to help pay for school. John is in high school and also works part time for his dad during the summer. Calvin and Susie are the sole owners of Watterson's only car wash. Since Watterson is in the central valley, people's cars and trucks get very dirty all the time, so Calvin is never short on business. He is in charge of all of the big decisions, but has left the day-to-day running of the business to Tomas and to the general manager, an unrelated person named Rosy. Calvin has owned this business since he moved to Watterson in 1984. He distrusts lawyers, though he loves his accountant who gets him a refund on his federal tax return every year, so he has never taken the lawyer's advice to incorporate the car wash business. Calvin figures he is just washing cars, what's the worst that could happen? In any case, Attachment 1 (all attachments are at the end of I this narrative) shows the debits and credits (Rosy does all this work and then provides it to the accountant) related to the car wash business, Cal's Cheery Car Cleaners (FEIN: 34-6885588). The information does NOT include Calvin's decision to buy new equipment during 2021 AND 2022 to upgrade the speed of the car washing and expand to more car washing bays. Calvin likes to keep things simple, so does not believe in using the accrual method of accounting or anything to do with GAAP. As Calvin always says "GAAP is crap". Attachment 2 shows all of Calvin's fixed assets along with their date placed in service. Attachment 3 shows the assets Calvin disposed of during 2022 in order to replace them with the new assets purchased in 2021 (which are part of the fixed assets table). Calvin decided to borrow money from his local bank to help finance the cost of the new assets. He has never borrowed before for the car wash business. The contract to purchase all of the new bay \#4 (there is no Bay \#2) related equipment was signed on October 1, 2021 and the new assets placed in service in December 2021. Calvin also purchased a few more assets in 2022 as shown on Attachment #2. The car wash business was profitable in 2021 but not in 2014,2016 or 2018 (so much for even years). During January 2021, Calvin saw another opportunity in real estate in his town and decided to purchase an additional rental, but this time it was a 4 unit apartment complex at 888815th Street (kind of outside of town, but still close enough to visit if necessary and to collect the rent). Calvin decided that with 4 tenants, he would use a property management company to take care of screening tenants, collecting the rent and making repairs. Calvin, however, gets final say on the amount of rent and whether he believes the prospective tenants are worthy of renting in his new apartment building. Calvin takes care of paying all of the bills and just gets a rent check from the property managers every other month. In 2022, Susie convinced Calvin that it would be a good idea to buy some property in the mountains. So after quite a bit of looking and discussion, Calvin and Susie settled on a condominium in Squaw Valley, CA at a price of $350,000. So they could make the monthly payments, and since they could not be there every day, they decided to use a rental company to make arrangements to have the condo rented on days when they were not going to be there. After the purchase of the condo, Calvin and Susie hired a contractor to do some re-modeling. Susie really wanted to have a much larger kitchen area and had the contractor remove one of the walls separating the kitchen and the living room. During the demolition, the contractor, who happens to be Susie's brother, Darryl, found a painting hidden inside the wall. Ereing an honest fellow, Darryl, gave Susie the painting figuring it belonged to her now. Susie is an art teacher in high-school so knew a little bit about art and decided to have the painting appraised by the Antiques Roadshow when it would be in Sacramento. Turns out, the painting is an original Jackson Pollock worth approximately $150,000 according to Susie's sister Carryl, who happens to be a professional appraiser. The remodel, costing $75,000, was finished on April 15, 2022. Following is the list of attachments related to the rental properties: Attachment 4: 2Ed Avenue income and expenditures Attachment 5: 2nd Avenue Fixed Assets Attachment 6: Apartment complex details Attachment 7: Squaw Valley Details ATTACHMENT 1 ATTACHMENT 2 ATTACHMENT 3 CALVIN \& SUSIE HOBBES 2nD AVENUE INFORMATION FY 22 ATTACHMENT 4 DAYS RENTED 365 PERSONAL USE DAYS MONTHLY RENT 3,500 EXPENDITURES FOR 2022: REPAIRS CASUALTY INSURANCE MORTGAGE INTEREST PROPERTY TAXES ADVERTISING GARDENER GARBAGE UTIUTY SEWER AND WATER UTILITY 2,000 2,500 6,500 5,500 200 1,200 720 660 CAIVIN HOBES 2ND AVENUE FXED ASSETS ATTACHMENT 5 Fr2z HOUSE LANO NEWROOF CARPET COUNIERIOPS APPUANCES FENGING PUROHASE PRICE PURCHASE DATE 300,0007/1/199660,0007/1/199625,00010/1/201012,0008/15/20219,0008/15/20218,0008/15/20214,0003/1/2004 CALVIN \& SUSIE HOBBES APARTMENT COMPLEX INFORMATION FY 22 ATTACHMENT 6 PURCHASE DATE PURCHASE AMOUNT - BUILDING PURCHASE AMOUNT - LAND MONTHS RENTED 2/1/2021 400,000 50,000 12 4 4,200 PERSONAL USE DAYS MONTHLY RENT EXPENDITURES FOR 2022: REPAIRS MANAGEMENT FEES CASUALTY INSURANCE MORTGAGE INTEREST PROPERTY TAXES ADVERTISING GARDENER GARBAGE UTILITY SEWER AND WATER UTILITY 3,000 8,600 18,000 5,000 1,000 1,600 3,200 4,500 CALVIN \& SUSIE HOBBES SQUAW VALLEY PROPERTY INFORMATION FY 22 ATTACHMENT 7 PURCHASE DATE PURCHASE PRICE REMODEL COST DAYS RENTED PERSONAL USE DAYS DAILY RENT 2/15/2022 350,000 75,000 150 19 200 EXPENDITURES FOR 2022: MANAGEMENT FEES REPAIRS REMODELING CLEANING FEES ADVERTISING ELECTRIC COSTS OTHER UTILITY COST PROPERTY INSURANCE MORTGAGE INTEREST HOMEOWNERS ASSOCIATION DUES PROPERTY TAXES SUPPLIES 4,000 2,500 75,000 1,000 975 1,000 3,600 2,800 7,500 1,500 3,800 400 Fom- W-2 Wage and Tax Statement Copy A For Soclal Security Adininistration - Send this enfics page With Fom W.3 to the Social Socurity Administrations photocopies aro not accopeste. Do Not Cut, Fold, or Staple Do Not Cut, Fold, or Staple Forms on This Page 3232 CORRECIED ZP or foridgnpontal codn Micron Band lindian Casino B77 Wiley E Stroot Colusa. CA 977 Be PAYEfrs hoderas llewt. 33555 WNNER9 name CMB Na. 15950033 2022 Form W-2G Certain Gambling Winnings For Pitusoy Act and Papenwork Poctuction Notice, soe the 2017 Signature r Date f Form W-2G Cat, Ho, 1013eV Do Not Cut or Separate Forms on This Page - Do Not Cut or Separate Forms on This Page 3232 VOID CORRECTED Under penatlies of periury, I declare that, to the best of my knowledoe and belet, the nume, addreas, and taypayer identificabion number that I have furniahed conecty lidentily me as the reciplent of this payment and ary payments trom idendical wagens, and that no other personis entilied to any part of these poymenta. Signature b Date Do Not Cut or Separate Forms on This Page - Do Not Cut or Separate Forms on This Page CORRECIED (if checked) Before depreciation expense, what is taxable income for 2022? 839,255822,735801,735818,255 Question 2 Depreciation expense for 2022 is: 8,372165,000 0 173,372 The amount of section 179 expense taken in 2021 was: \begin{tabular}{l} \hline 0 \\ \hline 510,000 \\ \hline 1,765,000 \\ \hline 225,000 \\ \hline \end{tabular} Question 4 Bonus depreciation under section 168(k) taken in 2021 was: 1,781,457510,0001,255,00016,457 MACRS depreciation taken for 2022 is: 8,372 0 173,372 165,000 Question 6 Taxable income for 2022 including depreciation expense is: 818,255839,255644,883665,883 Calvin and his wife Susie live in Watterson, California which is a moderate sized town between Sacramento and Chico. They have been pretty successful in their financial lives over the years and own a number of business ventures. They have two sons, Tomas and John. Tomas (SSN 333-44-9668) was born in December 1999 and John (SSN 444-33-9988) was born a few years later in June 2005. Tomas attends school at Sac State carrying only 9 units each semester in the graduate accounting program so that he can work part time in one of his dad's businesses to earn money to help pay for school. John is in high school and also works part time for his dad during the summer. Calvin and Susie are the sole owners of Watterson's only car wash. Since Watterson is in the central valley, people's cars and trucks get very dirty all the time, so Calvin is never short on business. He is in charge of all of the big decisions, but has left the day-to-day running of the business to Tomas and to the general manager, an unrelated person named Rosy. Calvin has owned this business since he moved to Watterson in 1984. He distrusts lawyers, though he loves his accountant who gets him a refund on his federal tax return every year, so he has never taken the lawyer's advice to incorporate the car wash business. Calvin figures he is just washing cars, what's the worst that could happen? In any case, Attachment 1 (all attachments are at the end of I this narrative) shows the debits and credits (Rosy does all this work and then provides it to the accountant) related to the car wash business, Cal's Cheery Car Cleaners (FEIN: 34-6885588). The information does NOT include Calvin's decision to buy new equipment during 2021 AND 2022 to upgrade the speed of the car washing and expand to more car washing bays. Calvin likes to keep things simple, so does not believe in using the accrual method of accounting or anything to do with GAAP. As Calvin always says "GAAP is crap". Attachment 2 shows all of Calvin's fixed assets along with their date placed in service. Attachment 3 shows the assets Calvin disposed of during 2022 in order to replace them with the new assets purchased in 2021 (which are part of the fixed assets table). Calvin decided to borrow money from his local bank to help finance the cost of the new assets. He has never borrowed before for the car wash business. The contract to purchase all of the new bay \#4 (there is no Bay \#2) related equipment was signed on October 1, 2021 and the new assets placed in service in December 2021. Calvin also purchased a few more assets in 2022 as shown on Attachment #2. The car wash business was profitable in 2021 but not in 2014,2016 or 2018 (so much for even years). During January 2021, Calvin saw another opportunity in real estate in his town and decided to purchase an additional rental, but this time it was a 4 unit apartment complex at 888815th Street (kind of outside of town, but still close enough to visit if necessary and to collect the rent). Calvin decided that with 4 tenants, he would use a property management company to take care of screening tenants, collecting the rent and making repairs. Calvin, however, gets final say on the amount of rent and whether he believes the prospective tenants are worthy of renting in his new apartment building. Calvin takes care of paying all of the bills and just gets a rent check from the property managers every other month. In 2022, Susie convinced Calvin that it would be a good idea to buy some property in the mountains. So after quite a bit of looking and discussion, Calvin and Susie settled on a condominium in Squaw Valley, CA at a price of $350,000. So they could make the monthly payments, and since they could not be there every day, they decided to use a rental company to make arrangements to have the condo rented on days when they were not going to be there. After the purchase of the condo, Calvin and Susie hired a contractor to do some re-modeling. Susie really wanted to have a much larger kitchen area and had the contractor remove one of the walls separating the kitchen and the living room. During the demolition, the contractor, who happens to be Susie's brother, Darryl, found a painting hidden inside the wall. Ereing an honest fellow, Darryl, gave Susie the painting figuring it belonged to her now. Susie is an art teacher in high-school so knew a little bit about art and decided to have the painting appraised by the Antiques Roadshow when it would be in Sacramento. Turns out, the painting is an original Jackson Pollock worth approximately $150,000 according to Susie's sister Carryl, who happens to be a professional appraiser. The remodel, costing $75,000, was finished on April 15, 2022. Following is the list of attachments related to the rental properties: Attachment 4: 2Ed Avenue income and expenditures Attachment 5: 2nd Avenue Fixed Assets Attachment 6: Apartment complex details Attachment 7: Squaw Valley Details ATTACHMENT 1 ATTACHMENT 2 ATTACHMENT 3 CALVIN \& SUSIE HOBBES 2nD AVENUE INFORMATION FY 22 ATTACHMENT 4 DAYS RENTED 365 PERSONAL USE DAYS MONTHLY RENT 3,500 EXPENDITURES FOR 2022: REPAIRS CASUALTY INSURANCE MORTGAGE INTEREST PROPERTY TAXES ADVERTISING GARDENER GARBAGE UTIUTY SEWER AND WATER UTILITY 2,000 2,500 6,500 5,500 200 1,200 720 660 CAIVIN HOBES 2ND AVENUE FXED ASSETS ATTACHMENT 5 Fr2z HOUSE LANO NEWROOF CARPET COUNIERIOPS APPUANCES FENGING PUROHASE PRICE PURCHASE DATE 300,0007/1/199660,0007/1/199625,00010/1/201012,0008/15/20219,0008/15/20218,0008/15/20214,0003/1/2004 CALVIN \& SUSIE HOBBES APARTMENT COMPLEX INFORMATION FY 22 ATTACHMENT 6 PURCHASE DATE PURCHASE AMOUNT - BUILDING PURCHASE AMOUNT - LAND MONTHS RENTED 2/1/2021 400,000 50,000 12 4 4,200 PERSONAL USE DAYS MONTHLY RENT EXPENDITURES FOR 2022: REPAIRS MANAGEMENT FEES CASUALTY INSURANCE MORTGAGE INTEREST PROPERTY TAXES ADVERTISING GARDENER GARBAGE UTILITY SEWER AND WATER UTILITY 3,000 8,600 18,000 5,000 1,000 1,600 3,200 4,500 CALVIN \& SUSIE HOBBES SQUAW VALLEY PROPERTY INFORMATION FY 22 ATTACHMENT 7 PURCHASE DATE PURCHASE PRICE REMODEL COST DAYS RENTED PERSONAL USE DAYS DAILY RENT 2/15/2022 350,000 75,000 150 19 200 EXPENDITURES FOR 2022: MANAGEMENT FEES REPAIRS REMODELING CLEANING FEES ADVERTISING ELECTRIC COSTS OTHER UTILITY COST PROPERTY INSURANCE MORTGAGE INTEREST HOMEOWNERS ASSOCIATION DUES PROPERTY TAXES SUPPLIES 4,000 2,500 75,000 1,000 975 1,000 3,600 2,800 7,500 1,500 3,800 400 Fom- W-2 Wage and Tax Statement Copy A For Soclal Security Adininistration - Send this enfics page With Fom W.3 to the Social Socurity Administrations photocopies aro not accopeste. Do Not Cut, Fold, or Staple Do Not Cut, Fold, or Staple Forms on This Page 3232 CORRECIED ZP or foridgnpontal codn Micron Band lindian Casino B77 Wiley E Stroot Colusa. CA 977 Be PAYEfrs hoderas llewt. 33555 WNNER9 name CMB Na. 15950033 2022 Form W-2G Certain Gambling Winnings For Pitusoy Act and Papenwork Poctuction Notice, soe the 2017 Signature r Date f Form W-2G Cat, Ho, 1013eV Do Not Cut or Separate Forms on This Page - Do Not Cut or Separate Forms on This Page 3232 VOID CORRECTED Under penatlies of periury, I declare that, to the best of my knowledoe and belet, the nume, addreas, and taypayer identificabion number that I have furniahed conecty lidentily me as the reciplent of this payment and ary payments trom idendical wagens, and that no other personis entilied to any part of these poymenta. Signature b Date Do Not Cut or Separate Forms on This Page - Do Not Cut or Separate Forms on This Page CORRECIED (if checked)