INCOME TAX PROJECT
Valerie Lawson and Clara Norman are the sole equal shareholders in the corporation of Lawson And Norman Enterprises, Inc. Corporation, which is a retail office supplies and stationery store, began its operations on January 2, 1985 (also date of incorporation). For Federal Income Tax purposes, the corporation is a calendar year taxpayer and uses the Accrual Method Of Accounting. Its Employee Identification Number is 76-1234567, address is 4369 Robbie Lane Houston, Texas 77026-3915, telephone number is (281) 479-8132, fax number is (281) 567-9024 and E-Mail address is "lawsonandnormanenterprises.com". Business activity code for the corporation is 453210. Valerie Lawson is the president of the corporation and its contact person for Federal Income Tax purposes and Clara Norman is the secretary and treasurer of the corporation. Both are full-time employees of the corporation devoting one hundred percent (100%) of their time to the business and each has an annual salary of $75,000. Valerie Lawson's social security number is 234-56-7890 and her address is 8124 Annette Court Houston, Texas 77031-9475. Clara Norman has social security number of 890-12-3456 and her address is 2716 Nanette Drive Houston, Texas 77061-3459.
During the year of 2012, Lawson And Norman Enterprises, Inc. reported the following Income and Expenses (including necessary accruals) for Financial Accounting purposes:
Gross Receipts $1,482,000
Sales Returns And Allowances 109,000
Dividends Received From Stock (Not Qualified Dividends)
Investments In Less Than twenty percent (20%)
Owned United States (U. S.) Corporation 80,000
Taxable Interest 18,000
Tax-Exempt Interest 7,200
Salaries: Officers 150,000
Other Employees 108,000
Repairs And Maintenance 19,300
Rent Expense - Office 84,000
Rent Expense - Equipment 15,500
Payroll Taxes (Federal And State) 19,600
Interest Expense 25,200
Advertising Expense 44,500
Charitable Contributions 48,000
Legal And Professional Fees 28,800
Depreciation Expense 50,000 *
Utilities Expense 27,700
Employee's Health Insurance Premiums 14,200
Entertainment Of Clients 5,000
Officers' Life Insurance Premiums 14,000 **
* - Based upon Straight-Line Depreciation, a useful life of five (5) years and no salvage value for all assets (see specific assets below).
** - Lawson And Norman Enterprises, Inc. Is The Designated Beneficiary.
Lawson And Norman Enterprises, Inc. owns the following depreciable assets:
ASSET DESCRIPTION DATE ACQUIRED ORIGINAL COST
Automobile – 2011 Lexus 460 April 1, 2011 $ 50,000
Automobile – 2011 Cadillac Seville April 1, 2011 50,000
Furniture And Fixtures May 1, 2010 150,000
Every automobile was used a total of 18,000 miles during the year of 2012 all which were business miles. The automobiles were not available for personal use during off-duty hours and were used solely by Valerie Lawson and Clara Norman, who both have another vehicle available for personal use. For Federal Income Tax purposes, all of these assets are depreciated using the Modified Accelerated Cost Recovery System (MACRS). Section 179 Deduction was not elected in regards to any of these assets nor was Straight-Line Depreciation used.
Balance Sheets (Financial Accounting) for the Lawson And Norman Enterprises, Inc. at the beginning and ending of the year of 2012 are as follows:
ASSETS January 1 December 31
Cash $ 36,000 $ 84,000
Trade Notes And Accounts Receivable 96,000 90,000
Inventory (Valued At Cost) * 120,000 100,000
Marketable Securities - Long Term 140,000 170,000
Depreciable Assets (And Land) 260,000 ** 260,000 **
Less: Accumulated Depreciation (65,000) (115,000)
Other Assets (Deposits) 12,000 12,000
TOTAL ASSETS $ 599,000 $ 601,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts Payable (Non Recourse) $ 96,000 $ 116,200
Federal Income Taxes Payable 8,600 ?
Notes Payable - Short Term (Recourse) 16,000 24,000
Notes Payable - Long Term (Recourse) 164,000 212,000
Common Stock 10,000 10,000
Retained Earnings (Unappropriated) 304,400 229,042
TOTAL LIABILITIES AND ------------ ------------
STOCKHOLDERS' EQUITY $ 599,000 $ 601,000
* - The rules of Section 263A of the Internal Revenue Code do not apply to the corporation.
** - Includes $10,000 allocated to Land.
ESTIMATED TAX PAYMENTS
During 2012, Lawson And Norman Enterprises, Inc. made the following estimated tax payments:
April 17, 2012 $30,000
June 15, 2012 $20,000
September 17, 2012 $20,000
December 17, 2012 $10,000
2011 Federal Income Tax liability for Lawson And Norman Enterprises, Inc. was $76,800 and no overpayment of 2011 Federal Income Tax is being applied to the 2012 Federal Income Tax liability of Lawson And Norman Enterprises, Inc.
Both shareholders of Lawson And Norman Enterprises, Inc. are United States Citizens. Lawson And Norman Enterprises, Inc. does not own directly or indirectly fifty percent (50%) or more of the voting stock in any other domestic corporation and the corporation is not a subsidiary in an affiliated group or a parent-subsidiary controlled group. During the year of 2012, Lawson And Norman Enterprises, Inc. paid cash dividends of $280,000 ($140,000 to each shareholder) and the corporation didn’t pay dividends in excess of the corporation's Current Earnings and Profits and Accumulated Earnings And Profits. In addition, Lawson And Norman Enterprises, Inc. is not the shareholder in any foreign corporation nor has any interest in or a signature or other authority over any financial account in foreign country. Also, during the year of 2012, the corporation did not receive the distribution from nor was a grantor of, or transferor to, a foreign trust. Moreover, Lawson And Norman Enterprises, Inc. Didn’t issue publicly offered debt instruments with original issue discount. At last, the corporation had no Net Operating Losses (NOL's) carryover from prior tax years.
Prepare the C (Regular) Corporation Tax Return for the Lawson And Norman Enterprises, Inc. for the tax year of 2012. The following Forms are needed to complete the Tax Return:
INCOME (Page 1)
1. Total Income (Line 11): $941,000.
DEDUCTIONS (Page 1)
1. Charitable Contributions (Line 19): $36,566.
2. Depreciation (Line 20): $36,037. (Also Line 22 – Form 4562)
3. Total Deductions (Line 27): $611,903.
4. Taxable Income (Line 30): $273,097.
SCHEDULE M-1 (Page 5)
1. Net Income (Loss) Per Books (Line 1): $204,642.
2. Expenses Recorded On Books This Year
Not Deducted On This Return (Itemize) (Line 5): $41,897.
SCHEDULE M-2 (Page 5)
1. Balance At End Of Year (Line 8): $229,042.