Tax instructions

Your clients are the Schmoes. They have a company formed this year called SCHMOECO OUTDOORS .

They will operate from their home and will keep equipment in a space rented locally. The office will be in the Schmoes spare bedroom, at least initially.

Joe and Dough Schmoe began the business in May 2022. They are all about Yards. Yard design, landscape architecture, planting, servicing, and caring for properties As full-service outdoor space caregivers, they do it all. They plant, seed, mulch, weed, fertilize lawns and gardens. In fall they do leaf maintenance and in winter, snow removal. They also check on homes and handle whatever repair and maintenance needs addressing for summer residents who often need assurance all is well at the summer palace.

You are to prepare 3 tax returns for these people who are co-owner/ operators /shareholders or partners as appropriate.

The 2021 forms need to be treated as 2022 forms. It is helpful to change everything on the form for your own purposes when you first download them to avoid confusion. You do not need to submit altered forms.

You might think they could file a sch C if they were filing a joint return. If you have two or more owner operators you have a partnership. Partnerships prepare and file 1065s and K-1s to the partners. Assume they are a general partnership.

Treat each scenario separately The 4562 should be the same for all entities. (Depreciation)

C Corporations file form 1120 Also include a calculation of the tax on the Schmoes for individual tax purposes. 1120---Do p 1, p. 2 is N/A, calculate the tax on p. 3 JUST LINE 2 THEY MADE NO ESTIMATED PAYMENTS. PAGE 6 IS BALANCE SHEET AND SCHEDULE M

Here are the numbers for schedule M.1120 p 6 (book tax differences)

They can also be check figures.

Line 1 NI per books 136,670

Line 2 FIT 36,330

Line 6 subtotal 173,000

Line 7 1,500

Line 8a 12,116

Line 10 159,384

S Corporations file form 1120S Also include a calculation of the tax on the Schmoes for individual tax purposes.

Partnerships file form 1065 Also include a calculation of the tax on the Schmoes for individual tax purposes.

Attach to all 3 form 4562 and the individual calculation. You dont need to do a 1040 just do a calculation and indicate what they tax will be for the individual taxpayers (joint return for 2022)

The results of operations and other details follow.

In May, Dough put up 200,000 and Moe put up 50,000 in cash. They also borrowed $150,000 which is assumed to be recourse financing. This could matter for basis purposes if the entity passes through a loss.

Revenues for the calendar year

Sales $ 550,000

COGS 255,000

Labor 50,000

Compensation

To schmoes 40,000 (20 k each)

Rent 12,000

Insurance 6,000 (put on line 26 if no category for it on 1120)

Depreciation for book 10,000

Depreciation for tax 22,116

Misc. items municipal bond interest income $ 1,500

Capital gain income (short term-same for book and tax) 2,000

Charitable contributions from business ( 1,000)

Interest expense on loan for business

(assume deductible in spite of muni bond) ( 6,000)

Assets purchased follow:

ALL ARE 7 YEAR ASSETS EXCEPT THE ASSETS IDENTIFIED AS 5 YEAR ASSETS

Large truck $75,000 ( truck 5 yr assume 100% business not a luxury auto)

Trailor 10,000

Plow 5,000

Spreaders 2,000

Mowers 7,500

Roto tiller 1,500

Blowers 5,000

Snow throwers 2,500

Leaf sucker 5,000

Weedwhackers 500

Computers 2,000 (5 yr property)

Office furniture 3,000

SMALL TOOLS 1,500**

(Rakes, shovels, garbage pails and other small hand tools and similar items)

Expense these as small tools (line 26 of 1120)

The Schmoes each got $20,000 in compensation for the year. (LINE 12 OF 1120)

In addition, distributions of $20,000 to him and $80,000 to her were made in December. This would be a dividend in the corporate scenario.

Taxable income is $158,384. (I put muni bond in as income by mistake)

This requires a change in book income (pretax is 172,000 taxes are 36,120 and Net income is 135880

Note the small tools should be expensed on line 26 with anything else that does not have a natural category on 1120.