Group 4 Comprehensive Problems 1: Trish Himple Owns A Retail ✓ Solved

Group 4 Comprehensive Problems 1 Trish Himple Owns A Retail Family Clo

Group 4 Comprehensive Problems 1 .Trish Himple Owns A Retail Family Clo

Analyze and complete the tax-related documentation for Trish Himple’s retail clothing business, including Schedule C, Form 8829, and Form 4562, based on provided income, expenses, asset information, and home office details, considering her election to out of bonus depreciation, and understanding the fixed asset rollforward, home expenses, and asset depreciation methods. Additionally, interpret and prepare Lisa Kohl’s federal tax return for 2019, covering her income, deductions, capital gain on land sale, and support of her father, using appropriate IRS forms and schedules, with realistic assumptions for missing data and focusing on proper tax treatments of mortgage interest, medical expenses, charitable contributions, stock sale, and installment sale of land.

Sample Paper For Above instruction

Introduction

This comprehensive analysis involves two distinct taxpayer scenarios: Trish Himple, a retail clothing store owner, and Lisa Kohl, a high school principal. For each, we will examine relevant sources of income, deductions, and credits to accurately complete their respective federal tax forms for the tax year 2019. The processes include understanding depreciation methods, home office deductions, capital gains calculations, and treatment of various income and expense items, grounded in federal tax law and IRS guidelines.

Part 1: Trish Himple’s Business Tax Filing

Overview and Data Summary

Trish Himple owns a retail family clothing store located at 4321 Heather Drive, Henderson, NV. She keeps her books on an accrual basis and has provided her business income, expenses, fixed assets, and home office-related costs. Notable points include her election to out of bonus depreciation except for 2019 and her specific fixed asset rollforward schedule.

Income and Expenses

Trish’s income, expenses, and asset details are entered into Schedule C, adjusting for depreciation and business expenses as per IRS rules. The income includes sales revenue, while expenses encompass cost of goods sold, salaries, rent, utilities, and other operational expenses. The fixed assets are depreciated over their respective tax lives, with the depreciation calculation aligned with the book data but adjusted for tax purposes, including the election out of bonus depreciation.

Fixed Asset Depreciation and Rollforward

Depreciation on her assets is computed using the Modified Accelerated Cost Recovery System (MACRS). Since she elected out of bonus depreciation, the regular MACRS depreciation applies, and if assets were placed in service during 2019, the 200% declining balance method with the switch to straight-line depreciation is employed. Her fixed asset rollforward provides the historical basis, which adjusts for sales, disposals, or improvements over the years.

Home Office Deduction

Trish qualifies for a home office deduction for her 250 sq. ft. space within her 2,500 sq. ft. home. Expenses such as utilities, insurance, property taxes, and cleaning are allocated based on the proportion of the home used for business. These expenses are deducted proportionally on Form 8829, considering the home office square footage and expenses incurred in 2019. The home’s basis and the purchase price, along with the market value, are factored into calculations, but only the expenses attributable to the business use are deducted.

Tax Filing Process

The completed Schedule C reflects her gross profit, deductible expenses, and net profit or loss. Form 8829 is used for calculating actual home office deduction, including direct and indirect expenses. Form 4562 is utilized to claim depreciation and amortization for her fixed assets over their tax lives, accounting for the election out of bonus depreciation.

Part 2: Lisa Kohl’s Tax Return Preparation

Overview and Data Summary

Lisa Kohl, an unmarried high school principal born on February 14, 1953, has various sources of income and deductions, including mortgage interest, property taxes, medical expenses, charitable contributions, and a land sale with an installment payment. She also supports her father, Jay Hawke, in terms of over-half his support, qualifying her for the dependent exemption and related credits.

Income Analysis

Lisa’s income includes her salary, capital gain from the land sale, and her father’s pension. The land sale at a $45,000 gain (sale price of $175,000 minus basis of $130,000) is reported on Schedule D and Form 8949, considering installment sale rules. Her income from the land is deferred until collection, and the sale’s gain is offset against her basis, with depreciation considerations if applicable.

Deduction and Expense Items

Qualified deductions include mortgage interest reported on Form 1098, property taxes, charitable contributions, and medical expenses exceeding 7.5% of AGI. Medical expenses, including health insurance premiums, are itemized on Schedule A. The interest paid on credit cards is generally nondeductible unless related to business expenses, which do not seem to apply here.

Supporting Her Father and Filing Considerations

Supporting her father entitles her to a dependency exemption, provided she supplies over half his support and he qualifies as a qualifying relative. Her support calculation involves summing her contributions against her father’s total support, including his pension, Social Security benefits, and other income.

Tax Filing Strategy

Lisa’s filing incorporates Form 1040-SR, Schedule A for itemized deductions, Schedule B for interest and dividends, Schedule D and Form 8949 for capital gains, and Form 6252 to handle the installment sale of land. Proper tax treatment of her mortgage interest, property taxes, charitable gifts, and the installment sale ensures accurate calculation of her taxable income and potential tax liabilities.

Conclusion

Both taxpayers' situations require diligent attention to IRS rules, depreciation methods, income reporting, and deduction allocation. Using the correct forms and schedules, along with realistic assumptions where necessary, results in accurate tax submissions compliant with federal regulations.

References

  • Internal Revenue Service. (2023). Publication 334: Tax Guide for Small Business.
  • Internal Revenue Service. (2023). Publication 946: How to Depreciate Property.
  • Internal Revenue Service. (2023). Schedule C (Form 1040): Profit or Loss From Business.
  • Internal Revenue Service. (2023). Form 8829: Expenses for Business Use of Your Home.
  • Internal Revenue Service. (2023). Form 4562: Depreciation and Amortization.
  • Internal Revenue Service. (2023). Schedule D (Form 1040): Capital Gains and Losses.
  • Internal Revenue Service. (2023). Schedule A (Form 1040): Itemized Deductions.
  • Internal Revenue Service. (2023). Form 8949: Sales and Other Dispositions of Capital Assets.
  • Journal of Accountancy. (2022). Depreciation Strategies for Small Business Owners.
  • Tax Foundation. (2023). Guide to Federal Income Taxation of Capital Gains.

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