Title: Tax Planning for Corporate Taxpayers Jackson Corporation prepared the following book income statement for its year ended December 31, 2013:
Sales-------$950,000
Minus: Cost of goods sold--------(450,000)
Gross profit... $500,000
Plus: Dividends received on Invest Corporation stock------------$3,000
Gain on sale of Invest Corporation stock------------------- $30,000
Total dividends and gain $33,000
Minus: Depreciation ($7,500 + $52,000)--- $59,500
Bad debt expense----------------------$22,000
Other operating expenses-----------$105,500
Loss on sale of Equipment 1-------- $70,000
Total expenses and loss-------------- (257,000)
Net income per book before taxes-------------------- $276,000
Minus: Federal income tax expense-------- (90,000)
Net income per book---------------- $186,000
Information on equipment depreciation and sale:
Equipment 1: Acquired March 3, 2011 for $180,000
For books: 12-year life; straight-line depreciation
Sold February 17, 2013 for $80,000
Sales price $80,000
Cost $180,000 Minus: Depreciation for 2011 (1/2 year)...... $7,500
Depreciation for 2012 ($180,000/12)......$15,000
Depreciation for 2013 (1/2 year) ....$7,500
Total book depreciation........ (30,000)
Book value at time of sale....... (150,000)
Book loss on sale of Equipment 1.... $70,000
For tax: Seven-year Modified Accelerated Cost Recovery System (MACRS) property for which the corporation made no Sec. 179 election in the acquisition year and elected out of bonus depreciation.
Equipment 2:
Acquired February 16, 2012 for $624,000
For books: 12-year life; straight-line depreciation
Book depreciation in 2013: $624,000/12 = $52,000
For tax: Seven-year MACRS property for which the corporation made the Sec. 179 election in 2012 but elected out of bonus depreciation.
Other information:
Under the direct write-off method, Jackson deducts $15,000 of bad debts for tax purposes.
Jackson has a $40,000 Net Operating Loss (NOL) carryover and a $6,000 capital loss carryover from last year.
Jackson purchased the Invest Corporation stock (less than 20% owned) on June 21, 2011, for $25,000 and sold the stock on December 23, 2013, for $55,000.
Jackson Corporation has a qualified production activities income of $120,000.
Tasks:
1. For 2013, calculate Jackson's tax depreciation deduction for Equipment 1 and Equipment 2, and determine the tax loss on the sale of Equipment 1.
2. For 2013, calculate Jackson's taxable income and tax liability. 3. Prepare a schedule reconciling net income per book
3. Prepare a schedule reconciling net income per book to taxable income before special deductions (Form 1120, line 28)