Car wash a few years ago, and his business is a success. During the conversation, you gather the following information about the business:
- Business Name: The Car Wash
- Business address: 1046 Broadway Street, Huntington Beach, CA 92605
- Business description: Self-Service Car Wash
- Employer identification number: 99-8877665
- Date the business started: January 1, 2008
When you ask for the financial records of the business, he provides you with an income statement that he generated. You also ask for the general ledger so you can see the detail that was recorded in each of his accounts. Mr. Smith informs you that he uses the cash basis of accounting for his business.
Income Statement
December 31, 20XX
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Revenue:
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Service Revenue
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254,603
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Expenses:
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Advertising
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2,520
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Depreciation
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31,250
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Insurance
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7,260
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Interest expense
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36,204
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Licenses and fees
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7,260
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Miscellaneous
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4,074
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Office expense
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8,911
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Salaries and wages
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67,460
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Payroll taxes
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9,444
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Employee benefits
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1,349
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Professional fees
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1,210
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Repairs and maintenance
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20,674
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Telephone
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900
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Travel
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1,500
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Utilities
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27,752
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Net Income Before Taxes
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26,835
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The general ledger detail provides you with the following information about what is recorded under Miscellaneous expenses.
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Miscellaneous Expenses
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Meals and entertainment
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$2,074
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Lease payments
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$2,000
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Total miscellaneous expenses
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$4,074
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When you ask the client about the lease payment, he tells you that he takes care of his mother and pays for her car lease payment with cash from the business. You confirm with Mr. Smith that his mother is not involved with his business in any way.
The depreciable property is the car wash building that cost $555,000. In your research, you learn that car wash buildings are depreciated over 15 years under the half-year convention using the Modified Accelerated Cost Recovery System (MACRS).
Prepare the tax return for your clients business on Form 1040 Schedule C. Complete Form 1040 Schedule SE. Want an answer?