Jay and JoAnn Jefferson are married and have a joint consulting business. The business taxable income of $100,000 for 2016 and they both take $35,000 out of the business to live on and leave $26,000 in the business to expand. Here are the business revenue and expenses:
Consulting revenue
$256,000
Salaries expense, employees
100,000
Payroll tax expense
18,000
Owners' Draw
70,000
Rent expense
12,000
New Computer equipment (total cost)
Claim section 179 deduction
10,000
Travel expense
4,000
Health Insurance (employees)
6,000
Health Insurance (owners)
4,000
Meals
2,000
Supplies
5,000
Tax return 1: Assuming Jay and JoAnn have an unincorporated business that they run as a sole proprietorship, prepare their joint Federal income tax return for 2016. Assume that they have no dependents, do have insurance coverage, do not have any other income or itemized deductions, and they made quarterly Federal income tax payments totaling $24,000. Don't forget to include a standard deduction and personal exemptions. You should complete a Schedule C, Schedule SEs, Form 4562, and a Form 1040.
Tax return 2: Assuming Jay and JoAnn have this same business that they run as a regular corporation, prepare their joint Federal income tax return for 2016. They each received a W-2 from the business which is attached.
Assume that they have no dependents and do not have any other income or itemized deductions. Don't forget to include a standard deduction and personal exemptions. You should complete a Form 1040. Note: In this situation, the corporation would pay tax on the $100,000 of income after reducing it for the salaries to officers of $70,000 (35,000 each and medical insurance or $2,000 each). The corporate tax would be (15%).
Tax return 3: Assuming Jay and JoAnn have this same business that they run as a partnership, prepare their joint Federal income tax return for 2016. Attached is the copy of the partnership K-1 for each of them. Assume that they have no dependents, do not have any other income or itemized deductions, and they made quarterly Federal income tax payments totaling $24,000. Don't forget to include a standard deduction and personal exemptions. You should complete a Schedule E (page 2), Schedule SEs, Form 4562, and a Form 1040. Don't forget to include a standard deduction and personal exemptions. You should complete a Schedule E (page 2), Schedules SE, Form 4562, and a Form 1040.
Note: In computing the income distributed on this K-1. There were no salaries only the Line 1 income and the medical insurance paid by the partnership was shown as a guaranteed payment to partners and reported on a separate line. The section 179 depreciation was also reported separately.
Tax return 4: Assuming Jay and JoAnn have this same business that they run as an S corporation, prepare their joint Federal income tax return for 2016. Attached is the copy of the S corporation K-1 for each of them and W-2. Assume that they have no dependents, do not have any other income or itemized deductions. Don't forget to include a standard deduction and personal exemptions. You should complete a Schedule E (page 2), Form 4562, and a Form 1040. Note: In computing the income distributed on this K-1. the salaries were subtracted but the section 179 depreciation was not subtracted and reported separately. The amount of the officer's health insurance was deducted by the corporation, included in the W-2 wages and indicated on box 12 of the W-2.
Therefore, each K-1 reflects half of the business net income and half the 10,000 section 179 depreciation.