Group 4 Comprehensive Problems 1 Trish Himple Owns A 007325 ✓ Solved

Group 4 Comprehensive Problems1 Trish Himple Owns A Retail Family C

Group 4 Comprehensive Problems1 Trish Himple Owns A Retail Family C

Analyze and prepare the necessary tax documents and calculations for two scenarios: Trish Himple, a retail clothing store owner, with specific income, expense, and asset details, and Lisa Kohl, a high school principal, with various deductible expenses, a stock sale, and support considerations for her father. Complete Schedule C, Form 8829, Form 4562 for Trish, and Form 1040-SR, Schedule A, Schedule B, Schedule D, Form 8949, the Qualified Dividends and Capital Gain Tax Worksheet, and Form 6252 for Lisa, making realistic assumptions for missing data. Emphasize proper deduction calculations, asset depreciation, capital gains, and dependents' support status, ensuring compliance with current tax laws and guidelines.

Sample Paper For Above instruction

Scenario 1: Trish Himple’s retail business and home office tax preparation

Introduction

In this comprehensive problem, we analyze the tax implications for Trish Himple, who owns a retail clothing business, along with her personal residence, and is preparing her tax forms based on her income, expenses, and asset data provided for the year 2019. This involves calculating business income and expenses, depreciation, and home office deductions, while ensuring adherence to the tax laws governing depreciation elections and limits.

Business Income and Expenses

Trish's store's financial data include revenue and expenses, which form the basis for Schedule C computations. The key income items involve gross sales, less returns, and allowances, whereas expenses include costs such as inventory, wages, rent, utilities, and depreciation of assets like the truck. It’s crucial to separate personal and business expenses, ensuring only business-related costs are deducted.

Fixed Asset Rollforward and Depreciation

The fixed asset schedule provides asset purchase costs and accumulated depreciation. For the truck, depreciation is calculated considering the asset’s class life and the election against bonus depreciation for 2019. Since the truck is not considered a passenger vehicle, luxury auto limits do not apply. For assets purchased in previous years, remaining basis and depreciation are adjusted accordingly, with new purchases added for 2019, and depreciation calculated on the appropriate life spans.

Home Office Deduction

Trish has a qualified home office space of 250 sq. ft. out of her total 2,500 sq. ft. residence. The total home costs—utilities, cleaning, insurance, property tax—are allocated based on the office space ratio (250/2,500 = 10%). She elected out of bonus depreciation but can claim a deduction for the home office using Form 8829, applying the simplified or regular method. Utility, insurance, and property taxes are apportioned accordingly for home office expenses.

Tax Elections and Asset Lives

Trish did not elect immediate expensing in any year and elected out of bonus depreciation, opting instead for MACRS depreciation over asset lives. The purchase and basis information, along with the election choices, inform the depreciation calculations and the asset's book and tax basis adjustments.

Form Completion

The Schedule C summarizes business income and deductions, detailing gross receipts, expenses, and net profit. Form 8829 calculates the home office deduction based on the apportioned costs, while Form 4562 reports depreciation and amortization of assets, reflecting the election choices made regarding bonus depreciation and straight-line depreciation.

Scenario 2: Lisa Kohl’s tax return for 2019 including sale of land, medical expenses, and support for her father

Introduction

This scenario involves preparing Lisa Kohl’s tax return, factoring in her income such as interest, capital gains from land sale, medical expenses, charitable contributions, and her support for her father. The sale transaction includes installment sale considerations, and her supporting her father impacts the dependency and filing status.

Investment Sale and Capital Gains

Lisa sold land for $175,000 with a basis of $130,000, resulting in a capital gain of $45,000. Since she received a $25,000 down payment and a note for $150,000, the sale involves installment sale rules, requiring recognition of a portion of the gain in the current year. The installment method calculation is used on Form 6252, with the gain deferred proportionally based on cash received versus total sale price.

Interest and Income Reporting

The installment note’s interest component—8% annually—is also reportable as interest income. The principal payments reduce the installment receivable. Lisa's other income sources include medical expenses, charitable contributions, and interest payments, which she deducts using Schedule A.

Dependency and Support for Her Father

Lisa supports her father, who resides in a senior facility, providing over one-half his support. Although her father has a pension, Social Security, and other income, her support contribution qualifies her to claim him as a dependent, provided she satisfies the support test and other IRS criteria. The income and dependency rules are examined, considering her father’s income and social security benefits, to determine dependency status.

Tax Form Preparation

Lisa reports her income, deductions, and credits on Form 1040-SR, with Schedule A for itemized deductions, Schedule B for interest and dividends, Schedule D and Form 8949 for capital gains, and Form 6252 for the installment sale. The Qualified Dividends and Capital Gain Tax Worksheet ensures correct tax calculation on capital gains, considering the installment sale’s deferred income.

Conclusion

This comprehensive problem highlights the complexities of individual tax return preparation involving capital transactions, itemized deductions, dependency support, and installment sale income recognition—all critical components under current U.S. tax law.

References

  • Internal Revenue Service (IRS). (2023). Publication 334, Tax Guide for Small Business.
  • Internal Revenue Service (IRS). (2023). Schedule C (Form 1040), Profit or Loss from Business.
  • Internal Revenue Service (IRS). (2023). Form 8829, Expenses for Business Use of Your Home.
  • Internal Revenue Service (IRS). (2023). Form 4562, Depreciation and Amortization.
  • Internal Revenue Service (IRS). (2023). Publication 544, Sales and Other Dispositions of Assets.
  • Internal Revenue Service (IRS). (2023). Publication 523, Selling Your Home.
  • Internal Revenue Service (IRS). (2023). Schedule D (Form 1040), Capital Gains and Losses.
  • Internal Revenue Service (IRS). (2023). Form 8949, Sales and Other Dispositions of Capital Assets.
  • Internal Revenue Service (IRS). (2023). Instructions for Form 6252, Installment Sale Income.
  • Banking and Investment Publications. (2022). Tax Guide to Investment and Capital Gains Planning.

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