Tax return information

You own a t-shirt screen printing company called Back the Pack. Back the Pack operates as a regular Corporation under Subchapter C of the Internal Revenue Code. Back the Pack incorporated on April 1, 2014 and business began on June 1, 2014. The company owns the building that the store is located in and all of the equipment that the business uses. The tax year for the Corporation is the calendar year and it is on the accrual method. The tax identification number for Back the Pack is 12345678. Do not forget to fill out the Corporations name and relevant information at the top of the tax return forms. Please complete the 2016 Form 4562 Depreciation and Amortization. You do not need to complete Parts I, II, and V of the form because you should assume you are not electing the Section 179 deduction, you have elected out of bonus depreciation, and you have no listed property for the 2016 tax year. You will compute MACRS depreciation in Parts III and IV and, if any, amortization in Part VI. You will also need to complete Page 1 of the 2016 Form 1120 U.S. Corporation Income Tax Return. You will only need to complete through line 31. Also, complete the Schedule M-1 Reconciliation of Income (Loss) per Books with Income per Return (on page 5 of the 1120). This is the itemized book-tax differences (BTD). Put each BTD separately in the correct section. These forms are found on the IRS website (www.irs.gov) but I have included the required forms in Moodle for your convenience.

Note that the depreciation and amortization amounts computed on Form 4562 flow to Form 1120 page 1. The Form 1120 page 1 is the tax income statement that includes all tax amounts for income and deductions. The Modified Schedule M-1 starts with net income per books and adjusts the book revenues and expenses to tax amounts using book-tax differences. Line 28 of the Form 1120 should tie to line 10 on the Schedule M-1. Use the appendix in your textbook to compute the total corporate tax on line 31 of the Form 1120. Do not worry about including any non-numerical information that is not provided with the assignment. The company owns the following assets: Land purchased on 5/1/2014 for $180,000. The land was placed in service on 6/1/2014. Building purchased on 5/1/2014 for $350,000. The building was placed in service on 6/1/2014. Screen printing machinery purchased and placed in service on 6/1/2014 for $85,000. Office equipment purchased and placed in service on 1/1/2015 for $90,000 Additional screen printing machinery purchased and placed in service on 2/1/2016 for $425,000 Computer equipment purchased and placed in service on 3/1/2016 for $35,000 Warehouse purchased and placed in service on 9/1/2016 for $300,000 Back the Pack uses straight line depreciation for book purposes. Book depreciation expense is $95,600 in 2016.

In addition to depreciation expense, you had the following book income and expenses in 2016:

Income from t-shirt sales of $1,150,000. Related cost of goods sold of $200,000

Muni bond interest income of $12,000

Salaries and wages of $250,000

A fine paid to the City of Raleigh of $6,000

Advertising costs of $7,000

Meals and entertainment expenses of $14,000

Increases in the Allowance for Bad Debts account equaled $13,000 and specific account write-offs totaled $15,000

Back the Pack received payments for consulting services in 2015 and 2016 as follows:

$6,000 in 2015. Two-quarters of the consulting services related to this payment were performed in 2015, one-quarter were performed in 2016, and the remainder will be performed in 2017.

$10,000 in 2016. One-fifth of the consulting services related to this payment were performed in 2016. The remaining services will be performed in 2017.

Tax return preparation guidance

Begin by formulating an income statement (GAAP basis) using the income and expense information provided.

Calculate tax depreciation amounts using the information from the problem and complete form 4562 with your depreciation numbers. Do not worry about Parts I and II (the company has elected out of section 179 and bonus depreciation). For Part III, note that line 17 is the sum of MACRS depreciation for assets put into service before the tax return year. You should fill out the lines under line 19 for assets placed into service during the tax return year.

Calculate book-tax differences for each income and expense item and formulate a tax income statement. The book-tax differences will reconcile the pretax book income down to the taxable income (like what we did in Chapter 6) and this reconciliation and the book-tax differences will go on the M-1. Do not worry about calculating tax expense per the books and disregard that line item on the M-1.

Put your completed tax income statement on page 1 of the 1120. Note that taxable income per the M-1 should tie to line 30 of the 1120.

It wont let me upload the required Tax forms but it is page 1 of Form 1120, page 5 of form 1120, and page one of form 4562.