Tax Accounting

Davy Jones provides the following information for Davy Jones’ Nautical Tours, LLC, a Limited Liability Company he operates with his business partner, William Turner

You’re required to prepare a 1065 U.S. Return of Partnership Income, a 1065 Statement 1 – Other Deductions, a 1065 Schedule K1 – Partner’s Share of Income, Deductions, Credits, etc., and a 1065 Schedule B1 – Information on Partners Owning 50% or More of a Partnership

Davy Jones’ Nautical Tours, LLC is operated by David K. Jones (SSN 000-00-0000) and William W. Turner (SSN 111-11-1111). They are each 50% members in the LLC.

Principal Business or Professional Activity Code; 114110
Principal business; Charter fishing tours
Employer Identification Number 867530950

Business address Home address (David K. Jones)
1008 North Harbor Drive 8700 Lake Murray Blvd #2
San Diego, CA 92103 San Diego, 92119

The cash accounting method and GAAP are utilized
The business started January 1st, 2012

  • Wages consist of $25,000 paid to one employee and $15,000 to another
  • Guaranteed Payments; $42,000 payments to each member; Jones and Turner
    Jones and Turner are considered self-employed, therefore no FICA was withheld on their behalf
  • Depreciation expense; The Jolly Roger was purchased for $850,000. The depreciation on the income statement is book depreciation and will differ from what is actually used on Line 16 Depreciation of form 1065.
    The boat is depreciated using the Modified Accelerated Cost Recovery System (MACRS), half year convention, is in its 4th year of service and the 10-year recovery period is used.
    Utilize Publication 946 How to Depreciate Property to calculate the correct depreciation amount to enter on the 1065 Lines 16a and 16c (Form 4562 is not required).
    Locate Table A1 in the Appendix to calculate the tax-deductible depreciation.
  • Interest expense is interest paid on the loan for the boat; the boat loan is considered nonrecourse
  • Insurance payments were made to cover liability for guests and for the boat
  • Payroll taxes; Federal Insurance Contributions Act (FICA); Social Security and Medicare payments made on the behalf of employees
    Federal Insurance Contributions Act (FUTA) made on behalf of employees
  • Travel was purely for business purposes
  • Parking fines are tickets Jones received for parking illegally
  • Lease expense was paid to Honda Motors for his mother’s car lease, who is not involved in the business in any way

Income Statement

December 31, 20XX

Revenue $400,950.00
Wages ($40,000.00)
Guaranteed Payments ($84,000.00)
FICA ($3,060.00)
FUTA ($85.00)
Depreciation ($85,000.00)
Interest ($43,900.00)
Advertising ($6,350.00)
Supplies ($23,795.00)
Legal fees ($6,940.00)
Insurance ($26,700.00)
Boat slip rental ($33,010.00)
Travel ($6,250.00)
Office expense ($7,940.00)
Parking fines ($1,350.00)
Lease expense ($3,650.00)
Net Profit $28,920.00

Balance Sheet

1/1/2016 12/31/2016
Cash $15,500.00 $22,010.00
Boat $850,000.00 $850,000.00
Accumulated Depreciation ($255,000.00) ($340,000.00)
Total Assets $610,500.00 $532,010.00

Loans $525,000.00 $417,590.00
Equity Investment $50,000.00 $50,000.00
Retained Earnings $35,500.00 $64,420.00
Total Equity + Liability $610,500.00 $532,010.00

Assignment Guidelines
To prepare The LLC’s tax return, complete the following steps:

  1. Ensure that you have Adobe Reader installed on your computer to open and use the downloadable IRS forms.
  2. Go to the IRS Web site (www.irs.gov) and download the fill-in tax forms that you will need to complete.
  3. Complete all necessary downloaded fill-in forms on the computer and save.
  4. Save the completed forms as PDFs and upload for grading.
  5. You may not utilize Tax preparation software to complete this assignment! This constitutes cheating!
  6. Save the completed forms as PDFs and upload for grading; double check your PDFs to ensure data was retained when they were uploaded to Submitted Assignments; blank forms will yield 0 points!

You will be required to fill out and submit the following forms
1065 U.S. Return of Partnership Income
1065 Statement 1 – Other Deductions
1065 Schedule K1 – Partner’s Share of Income, Deductions, Credits, etc.
1065 Schedule B1 – Information on Partners Owning 50% or More of a Partnership
(although a tax preparer is required to fill out a 1065 Schedule K1 for each partner/member, you may fill out just one for Davy Jones only since you have his address)

Complete all of the requested attachments for the applicable tax return.

 
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