Statement of facts

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Read the statement of facts and complete the form

For this assignment:

  • Read the statement of facts.
  • Visit the IRS forms website.
  • Find and prepare PDF versions of the following IRS forms and Schedules, if applicable:
    • Form 4562
    • Schedule A, Schedule C, Schedule SE, Schedule 1; and
    • Form 1040 (page 1 only).

STATEMENT OF FACTS

Taxpayer Jane Doe has the following personal information:
Name: Jane Doe
SSN: 444-44-4444
Address: 555 Any Street, Anytown, CA 90000
Marital Status: Married Filing Separate
Minor Children: 0
Elections: Itemized (first year is this year)
Summary: Jane Doe (DOE) runs a successful bed and breakfast (the “Business”). The Business began in two years ago and has been in continuous operation ever since. The Business reports its financial activity using the cash-basis method (details below). DOE purchased the Business for $1,100,000. Upon purchasing the Business, DOE had her accountant perform a cost segregation study. DOE’s accountant allocated the purchase price, as detailed below. For all allocated personal property, DOE’s accountant claimed depreciation under IRC Section 168(k). All other assets were depreciated using their normal useful life and allowances.

During the current year, DOE purchased the following assets and had the following financial activity:
New Computer: $2,000 (Section 1.263(a)-1(f) election)
New Cell Phone: $800 (Section 1.263(a)-1(f) election)
New Furniture: $15,000
State Tax Refund: $4,000Lotto winnings: $2,000
Mortgage Interest on Form 1098: $30,000 (Bed and Breakfast)
Mortgage Interest on Form 1098: $20,000 (Personal Residence – No Limit)
State Income Taxes Paid: $4,000
Property Taxes: $4,000 (Personal Residence)
Property Taxes: $12,000 (Bed and Breakfast)

Bed and Breakfast Business Financials:

  • EIN: 55-5555555
  • DBA: Sleepy Spoon Inn
  • Address: 113 Sleepy Blvd. Anytown, CA 90000
  • Payments received from customers: $210,000
  • Payments made for her business:
    • $22,000 supplies;
    • $3,000 client transportation costs;
    • $4,000 in accounting and legal fees;
    • $12,000 in equipment rental fees;
    • $30,000 in utilities;
    • $30,000 in wages; and
    • $7,000 in payroll taxes.

Cost Segregation Study
Equipment and Personal Property: $300,000
Land: $400,000
Building: $400,000
Total: $1,100,000

Note: When preparing DOE’s tax return, please make any and all elections that will give DOE the lowest total income tax. For Simplicity, ignore any possible QBI deductions.


According to the above statement, please answer the following questions:

1. The reported net income on Schedule C of Form 1040 is:
A. $57,000
B. $31,944
C. $46,944
D. $210,00

2. Taxable income on Form 1040 is:
A. $3,687
B. $38,455
C. $6,687