Michelle Kay purchased a small building on February 1 of the current year for $650,000. In addition, she paid $15,000 for land. Kay obtained a...
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1. Michelle Kay purchased a small building on February 1 of the current year for $650,000. In addiTon, she paid $15,000 for land. Ms. Kay obtained a $640,000 mortgage for the acquisiTon. She and ±ve of her employees use the property solely to store and sell a variety of gi² items under the business name of “Michelle’s Gi²s.” ³he following informaTon pertains to the business: Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $950,000 Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 625,000 Wages for employees ($20,000 each). . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Payroll taxes for ±ve employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,750 DepreciaTon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ? AdverTsing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000 Mortgage interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Legal services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 Fire insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000 Meals and entertainment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 During the year, Ms. Kay purchased the following assets for the business. She wants to depreciate all business assets as rapidly as the law allows. Cost Month/Day of AcquisiTon Personal computer. . . . . . . . . . . . . . . . . . . . . . $14,000 March 31 Printer for computer. . . . . . . . . . . . . . . . . . . . . 2,000 April 2 O´ce furniture and ±xtures. . . . . . . . . . . . . . . 20,000 April 29 Machinery (7-year property). . . . . . . . . . . . . . . 30,000 May 12 Michelle Kay was divorced from Benjamin Kay two years ago. ³he divorce decree sTpulates that Benjamin Kay would receive the dependency exempTon for their son, Eric (now 12 years old), even though Eric lives full-Tme with Ms. Kay in a home she maintains. During the year, Ms. Kay
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provided 25% of Eric’s support and Mr. Kay provided 75 percent. Ms. Kay received $15,000 of alimony and $10,000 of child support from Mr. Kay during the year. Ms. Kay’s Social Security number is 333-46-2974. Her address is 567 North Hollow Drive, Grimview, IL 48124. For business purposes, her employer ID number is 66-2869969. She uses the cash method of accounTng for all purposes. Unrelated to her business, Ms. Kay paid the following amounts during the year: EsTmated federal income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,000 State income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500 County income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500 Real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000 Mortgage interest on her home . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,600 Charitable contribuTons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,900 DeducTble contribuTon to individual reTrement account ( Note: ±his is a deducTon for AGI It is one of the “adjustments to income” on page 1 of Form 1040.). . . . 2,000 Health insurance for Ms. Kay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,000 Compute Ms. Kay’s tax liability for the year based on current tax law in e²ect for tax year 2015. (Hint: Ms. Kay’s adjusted gross income is less than $100,000 and there is no alternaTve minimum tax liability.)
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1 Attachment
2015 Kay M Form 1040  Individual Tax Return Only.pdf
pdf
Subject: Accounting, Business
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