Description
Please complete this form https://www.irs.gov/pub/irs-prior/f1120s--2014.pdf
C:11-64 Refer to the facts in Tax Form/Return Preparation Problem C:9-58. Now assume the company is an S corporation rather than a partnership. Additional facts are as follows:
Drs. Bailey and Firth formed the corporation on January 1, 2013, and the corporation immediately elected S corporation status effective at the beginning of 2013.
Upon formation of the corporation, Dr. Bailey received common stock worth $1.2 million, and Dr. Firth received common stock worth $2.8 million.
The balance sheet information is the same as in Table C:9-3 except the equity section is as follows:
| January 1, 2014 | December 31, 2014 | |
|---|---|---|
| Common stock | $4,000,000 | $4,000,000 |
| Retained earnings | 171,360 | 91,020 |
The $180,000 paid to Dr. Bailey is salary constituting W-2 wages (instead of a guaranteed payment). Ignore employment taxes (Social Security, etc.) on Dr. Bailey’s salary.
Qualified production activities income (QPAI) still equals $2.24 million, but employer’s W-2 wages allocable to U.S. production activities equal $1.16 million (because of Dr. Bailey’s salary). The company, being an eligible small pass-through S corporation, uses the small business simplification overall method for reporting these activities (see discussion for Line 12d of Schedule K and Line 12 of Schedule K-1 in the Form 1120S instructions).
Use book numbers for Schedule L and Schedule M-1 in Form 1120S.
C:9-58 Healthwise Medical Supplies Company is located at 2400 Second Street, City, ST 12345. The company is a general partnership that uses the calendar year and accrual basis for both book and tax purposes. It engages in the development and sale of specialized surgical tools to hospitals. The employer identification number (EIN) is XX-2016014. The company formed and began business on January 1, 2013. It has no foreign partners or other foreign dealings. The company is neither a tax shelter nor a publicly traded partnership. The company has made no distributions other than cash, and no changes in ownership have occurred during the current year. Dr. Bailey is the Tax Matters Partner. The partnership makes no special elections. Table C:9-3 contains book balance sheet information at the beginning and end of the current year, and Table C:9-4 presents a book income statement for the current year. Other information follows:
TABLE C:9-3 Healthwise Medical Supplies Company—Book Balance Sheet Information
TABLE C:9-4 Healthwise Medical Supplies Company—Book Income Statement 2013
| Sales | $7,000,000 | |
| Returns and allowances | (350,000) | |
| Net sales | $6,650,000 | |
| Beginning inventory | $1,400,000 | |
| Purchases | 2,800,000 | |
| Ending inventory | (1,680,000) | |
| Cost of goods sold | (2,520,000) | |
| Gross profit | $4,130,000 | |
| Expenses: | ||
Depreciation (including Sec. 179) | $ 891,840 | |
Repairs | 45,500 | |
General insurance | 49,000 | |
Guaranteed payment (to Dr. Bailey) | 180,000 | |
Other salaries | 980,000 | |
Travel | 28,000 | |
Utilities | 84,000 | |
Rent expense | 210,000 | |
Advertising expense | 42,000 | |
Professional fees | 70,000 | |
Employment taxes | 98,000 | |
Business interest expense | 33,600 | |
Investment expenses | 4,800 | |
Investment interest expense | 4,200 | |
Meals and entertainment | 21,000 | |
Charitable contributions (cash) | 56,000 | |
| Total expenses | (2,797,940) | |
| Other income: | ||
Interest on municipal bonds | 1,200 | |
Dividend income | 26,400 | |
Gain on stock sale: | ||
Selling price | $1,440,000 | |
Book value | (480,000) | |
Book gain | 960,000 | |
| Net income per books | $2,319,660 |
Explanation & Answer
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Form
1120S
Department of the Treasury
Internal Revenue Service
U.S. Income Tax Return for an S Corporation
OMB No. 1545-0123
Do not file this form unless the corporation has filed or is
attaching Form 2553 to elect to be an S corporation.
▶ Information about Form 1120S and its separate instructions is at www.irs.gov/form1120s.
2014
▶
For calendar year 2014 or tax year beginning
A S election effective date
TYPE
B Business activity code
number (see instructions)
OR
PRINT
, 2014, ending
, 20
Name
D Employer identification number
Number, street, and room or suite no. If a P.O. box, see instructions.
E Date incorporated
City or town, state or province, country, and ZIP or foreign postal code
F Total assets (see instructions)
C Check if Sch. M-3 attached
$
Yes
No
If “Yes,” attach Form 2553 if not already filed
G Is the corporation electing to be an S corporation beginning with this tax year?
(4)
(3)
(5)
Name change
Address change
S election termination or revocation
Final return (2)
Amended return
H Check if: (1)
▶
I Enter the number of shareholders who were shareholders during any part of the tax year . . . . . . . . .
Caution. Include only trade or business income and expenses on lines 1a through 21. See the instructions for more information.
1a
. . . . . . . . . . . . . .
1a
. . . . . . . . . . . . . .
1b
Balance. Subtract line 1b from line 1a . . . . . . . . . . . . . . . . . . .
Cost of goods sold (attach Form 1125-A) . . . . . . . . . . . . . . . . . .
Gross profit. Subtract line 2 from line 1c . . . . . . . . . . . . . . . . . .
Net gain (loss) from Form 4797, line 17 (attach Form 4797) . . . . . . . . . . . .
Other income (loss) (see instructions—attach statement) . . . . . . . . . . . . .
Total income (loss). Add lines 3 through 5 . . . . . . . . . . . . . . . . ▶
Compensation of officers (see instructions—attach Form 1125-E) . . . . . . . . . .
Salaries and wages (less employment credits) . . . . . . . . . . . . . . . .
Repairs and maintenance . . . . . . . . . . . . . . . . . . . . . . .
Bad debts
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Taxes and licenses . . . . . . . . . . . . . . . . . . . . . . . . .
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation not claimed on Form 1125-A or elsewhere on return (attach Form 4562) . . . .
Depletion (Do not deduct oil and gas depletion.) . . . . . . . . . . . . . . .
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pension, profit-sharing, etc., plans . . . . . . . . . . . . . . . . . . . .
Employee benefit programs . . . . . . . . . . . . . . . . . . . . . .
Other deductions (attach statement) . . . . . . . . . . . . . . . . . . .
Total deductions. Add lines 7 through 19
. . . . . . . . . . . . . . . . ▶
Ordinary business income (loss). Subtract line 20 from line 6 . . . . . . . . . . .
Excess net passive income or LIFO recapture tax (see instructions) . . 22a
Tax from Schedule D (Form 1120S) . . . . . . . . . . . 22b
Add lines 22a and 22b (see instructions for additional taxes) . . . . . . . . . . . .
2014 estimated tax payments and 2013 overpayment credited to 2014 23a
Tax deposited with Form 7004 . . . . . . . . . . . . 23b
Credit for federal tax paid on fuels (attach Form 4136) . . . . . 23c
Add lines 23a through 23c
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