57. Comprehensive Problem (Tax Return Problem). John Stantus, single, is the sol

Question

57. Comprehensive Problem (Tax Return Problem). John Stantus, single, is the

sole owner of Stantus Accounting Services, Co. He started the company, which is

organized as a sole proprietorship, on February 10 of the current year. For this year,

Stantus Accounting Services reported the following amounts of income and expenses:

Fee revenues $840,000 Expenses:

Employee wages (125,000) Payroll taxes (9,563) Advertising (3,600) Insurance (2,400) Utilities (7,200) Rent

(10,000) Supplies (5,000) Selling expenses (35,000)

• John purchased a car on February 1 of the current year for $24,000. He uses the car

for both business and personal purposes. Mileage logs indicate that John put 40,000

miles on the car this year. Of that total, 28,000 miles were business related and the

remaining 12,000 were related to personal travel. John wants to deduct the maximum

amount allowable for business use of his car.

• John also purchased office equipment, computers and other five-year property for

use in the business. He purchased $625,000 worth of such depreciable assets in

March. He wants to deduct the maximum amount allowable under Code Sec. 179 and

depreciate the remaining cost (if any) using bonus and MACRS depreciation.

• Selling expenses include $6,000 spent for meals and entertainment incurred on

John’s sales calls during the year.

• Selling expenses also include $12,000 in illegal payments to city officials paid to

secure a lucrative contract with the city. John was uncomfortable making this

payment, but reasoned that the contract was important to get his business off to a good

start.

• Selling expenses also include gasoline, parking fees, and other documented auto

expenses totaling $2,500

attributable to John’s sales calls.

Assume that John reports the revenue and expenses of Stantus Accounting Services

on Schedule C, that he uses the cash method of accounting, and that he has no other

taxable income, deductions or credits other than the items listed above. As noted

above, he is single, with no dependents. He lives at 105 1st Street in Jackson,

Mississippi (zip code = 39201). His social security number is 555-33-4444. His

business address is 501 19th Street, Jackson, MS 39201. Skipping Schedule SE (on

which you would ordinarily calculate the self-employment tax), prepare John’s 2017

Individual Income Tax Return. (Note: you may have to use 2016 forms.)

Explanation / Answer

Calculation of Mr JOhn's Taxable Income:

Particulats Amount in $

Total fee recieved 840000

Less : Allowable Expenses   

Wages and salaries payable 125000

Payroll Taxes 9563

Advertisement expenses 3600

insurance 2400

Utilities 7200

rent 10000

Supplies 5000

selling expenses 35000

Allowable Depreciaiton on Car

Cost of the car - 24000

rate of depreciaion - 15%

no. days used in the year is less than 180days

so total dep =24000*15%*50%=1800

allowable depreciation = (1800*28000days)/40000Days = 1260

Dep on office Equipment = 625000*15/100= 93750

Add : InadmissableExpenses

Illegal Payment made to city officails = 12000

Taxable Income of the Assessee =$ 547227

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