Title: Tax Planning for Corporate Taxpayers Jackson Corporation prepared the following book income statement for its year ended December 31, 2013:

Sales-------$950,000

Minus: Cost of goods sold--------(450,000)

Gross profit... $500,000

Plus: Dividends received on Invest Corporation stock------------$3,000

Gain on sale of Invest Corporation stock------------------- $30,000

Total dividends and gain $33,000

Minus: Depreciation ($7,500 + $52,000)--- $59,500

Bad debt expense----------------------$22,000

Other operating expenses-----------$105,500

Loss on sale of Equipment 1-------- $70,000

Total expenses and loss-------------- (257,000)

Net income per book before taxes-------------------- $276,000

Minus: Federal income tax expense-------- (90,000)

Net income per book---------------- $186,000

Information on equipment depreciation and sale:

Equipment 1: Acquired March 3, 2011 for $180,000

For books: 12-year life; straight-line depreciation

Sold February 17, 2013 for $80,000

Sales price $80,000

Cost $180,000 Minus: Depreciation for 2011 (1/2 year)...... $7,500

Depreciation for 2012 ($180,000/12)......$15,000

Depreciation for 2013 (1/2 year) ....$7,500

Total book depreciation........ (30,000)

Book value at time of sale....... (150,000)

Book loss on sale of Equipment 1.... $70,000

For tax: Seven-year Modified Accelerated Cost Recovery System (MACRS) property for which the corporation made no Sec. 179 election in the acquisition year and elected out of bonus depreciation.

Equipment 2:

Acquired February 16, 2012 for $624,000

For books: 12-year life; straight-line depreciation

Book depreciation in 2013: $624,000/12 = $52,000

For tax: Seven-year MACRS property for which the corporation made the Sec. 179 election in 2012 but elected out of bonus depreciation.

Other information:

Under the direct write-off method, Jackson deducts $15,000 of bad debts for tax purposes.

Jackson has a $40,000 Net Operating Loss (NOL) carryover and a $6,000 capital loss carryover from last year.

Jackson purchased the Invest Corporation stock (less than 20% owned) on June 21, 2011, for $25,000 and sold the stock on December 23, 2013, for $55,000.

Jackson Corporation has a qualified production activities income of $120,000.

Tasks:

1. For 2013, calculate Jackson's tax depreciation deduction for Equipment 1 and Equipment 2, and determine the tax loss on the sale of Equipment 1.

2. For 2013, calculate Jackson's taxable income and tax liability. 3. Prepare a schedule reconciling net income per book

3. Prepare a schedule reconciling net income per book to taxable income before special deductions (Form 1120, line 28)