ACCT 3307/5307 – Income Tax Accounting
Group Case #2 – MUST BE COMPLETED USING A SPREADSHEET PROGRAM
Facts
Michael and Cathy Misenti provide you with the following tax information for calendar year 2014.
Michael and Cathy have two dependent children under the age of 12.
Salary from Cathy’s Job as a pharmacist
Salary from Michael’s Job as a Plumber
Interest Income
Dividend Income
Short term Capital gains
State of Oregon Municipal Bonds
Annuity payments received (annuity cost $40,000, expected return $75,000)
Alimony paid by Cathy to her ex-husband
Compensatory and Punitive damages from age discrimination lawsuit
Portion of damages that represent reimbursement of medical costs
$652,000
$105,000
$14,250
$19,650
$10,750
$10,275
$42,000
$20,000
$250,000
$ 50,000 (included above)
Sole Proprietorship Information - Michael (Management Consulting)
Net Profit before depreciation
$975,000
New Asset Acquisitions
Machinery – 10/15/14
Cadillac Escalade (less than 6,000 pounds) – 10/15/14
Computer Nework– 106/15/14
Office Equipment (business machine) – 10/15/14
Storage Facility (i.e. Real Prop) for files (excluding land) – 9/1/14
$318,000
$65,000
$295,000
$203,000
$180,000 (Section 179 on this )
Michael wants to maximize his depreciation using Section 179– Remember depreciation of the business is
deducted on Schedule C.
Other Information
Partnership K-1 for Cathy -Misenti Supply Company - Ordinary Income $69,000 (Active participation),
LLC K-1 for Michael $55,000 income
S Corporation K-1 for Michael : Ordinary Income = $73,000.
Other Information
Family Moving expenses to relocate from TX to NV
Mortgage Interest (Primary Mortgage – Principal 1,300K)
Mortgage Interest – home equity (Principal 75K)
SEP Contribution for Michael’s business
State and Local taxes
Personal property taxes (on value of car)
Charity (cash)
Medical expenses paid to doctors & hospitals (not elective)
Investment interest expenses
Unreimbursed employee business expenses
$13,000
$72,000
$7,500
$49,500
$18,000
$600
$40,000
$96,000
$63,750
$42,000
Other Transactions (in all cases depreciation for the year of sale is already done)
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Michael sold his investment in VB Co. for $38,000. He originally invested $147,000 in the company
that qualified as a Sec. 1244 company. He purchased the stock in 1995 and sold it in 2014.
The Misenti’s sold their investment in Scientific Atlanta that the y bought on June 18,,2014 for $4,800
for $6,325 on November 15,2014.
On 2/1/14 Michael sold the old storage facility and purchased a new one (shown above). Michael
received $195,000 cash and the buyers assumed the remaining $45,000 loan on the building. He
originally purchased the building for $40,000. As of the date of sale, he had taken $10,000 of tax
depreciation. He also paid the real estate agent 6% of the sales price as a commission.
On 1/15/14, Michael sold his old computer system. He was paid $6,000 for the computer. Michael
originally purchased the equipment in 2011 for $10,500 and elected Sec. 179 expense for the asset.
On 3/15/14 Michael and Cathy sold there home that they used their principal residence for 4years
without interruption. They sold the home for $255,000. He originally purchased the home for
$320,000 in 2005.
On 8/4/14 Cathy sold her complete ownership in Yahoo Inc. She bought the stock for $8,350 in 1995
and sold it for $28,000.
Michael has not had any Sec. 1231 transactions in the last 5 years (info for lookback rule).
In May 2014, Michael sold stock in JAK Inc. for $40,000. He acquired this stock from his sister. His
tax basis in the stock was $30,000. However, his sister sold it to them at a loss of $14,500.
Required
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Create a schedule of all sales and exchanges of property transactions and label them accordingly
(e.g., Sec. 1231 gains/losses, Long-term capital, Sec. 1245 recapture, etc.)
Calculate the depreciation deduction on the 2014 asset acquisitions.
Calculate the Schedule C net income for the Misenti’s
Calculate the Self Employment tax for the for the Misenti’s
What is the Misenti’s 2014 total Gross Income ? What are the Misenti’s 2014 deductions for AGI and his Adjusted Gross IncomeWhat are the Misenti’s 2014 Itemized Deductions
What is the Misenti’s 2014 total tax liability (be sure to show your work here).
Please prepare the following tax forms to reflect the property transactions from above for the
Misenti’s (Form 1040-Schedule D, Form 8949, and Form 4797). These are the only forms
necessary for this project.