Harry (SSN 315-01-4212) & Sally (SSN 318-01-7921) Nelsen together with their 15 years old Son, Adam (SSN 043-50-1234) live at 250 Dodge Ave., East Haven Ct. 06512. Harry owns and operates Acme LLC, a residential remolding company located on 125 Clinton Street, New Haven CT. 06511. Harry who works at this business full time with a few employees maintains an inventory of building materials for residential jobs. His EIN is 36-6965432. Employer quarterly payroll tax returns were filed as required, and Harry values his inventory at cost. He operates his business on the accrual basis and has provided an unaudited partial income statement for 2020 and some additional information including beginning and ending inventory. Some of the items that Harry included in the statements may not be deductible so they should be reviewed when preparing the tax return. His business code is 236100 and he does not use his personal residence for any business activity.

An examination of Harry’s business records reveals that the depreciable property at the Acme LLC location includes machinery & equipment, and some office furniture all of which was fully depreciated in prior years. In addition to the income statement Harry provided the following information:

Breakout of Misc. expenses on income statement

Harry attended a construction conference & incurred the following expenses:

Airfare & lodging 800

Meals while attending the conference 250

Contributions to the Red Cross and United Way 500

Membership fee to Vista Golf Country Club 1,250

Total miscellaneous expenses $2,800

In addition to the expenses incurred for medical insurance for his employees, which is reflected on the income statement, Harry purchased medical insurance for himself which cost $10,000 for the entire year. Harry made 4 estimated federal tax payments of 7,500 each for 2020.

Acme LLC

For the Year Ended December 31, 2020

Operating Revenue

Sales $425,000

Discounts $ 25,000

Net sales $400,000

Inventory

Inventory, beginning year $ 90,000
Inventory, end of year $ 50,000

Purchases

Inventory Purchases $110,000

Operating expenses

Advertising expense $ 2,500

Professional fees $ 6,000

Employee benefits including employee health insurance $ 4,500

Insurance expense (other than health) $ 2,200

Rent expense (other business property) $ 6,600

Miscellaneous expenses (see above) $ 2,800

Payroll taxes $ 4,200

Utilities expense $ 5,200

Wages expense $ 94,000

Total operating expenses $ 128,000

Hint: Review Part III of Schedule C to calculate Cost of Goods Sold

Sally Nelsen has a fulltime job working as a sales agent where she earns a salary plus bonus. Sally’s company provides free medical insurance for her but Harry opted to purchase his own since Sally would have to pay if she added Harry to the work policy. Her income and related tax withholdings for 2020 is as follows:

	Gross Wages	State Income Tax Withheld	Federal Income Tax Withheld	Social Security Tax Withheld	Medicare Tax Withheld
	$75,000	$2,500	$9,800	$4,650	$1,088

In addition to her salary above, Sally earned a $10,000 commission which she received January 15th, 2021. Harry & Sally Nelsen also own a 1 family rental property located at 250 Salaro Ave, New Haven CT. 06502. The house was actively managed by Harry, and he provided the following information for the period:

Rental Income 45,000
Mortgage interest 9,000
Property taxes 9,500
Cleaning & maintenance 2,500
Insurance 1,600
Repairs 2,200

The rental property was purchased in 2020 with rental income beginning February 1, 2020. The furniture & appliances which qualify as 5-year MACRS property was also placed in service in February of 2020 and no bonus depreciation being taken. The following costs relate to the rental real estate:

Purchase price of rental property 350,000
Value of land included in purchase 50,000
Furniture & appliances total purchase price 40,000

Harry provided the following additional information for the preparation of their 2020 tax return. Also, the 2019 federal tax return had a $2,500 overpayment that was applied to 2020. In addition, Harry provided instructions to apply overpayment, if any on his 2020 tax return to 2021.

Interest Income (Peoples Bank) 2,000
City of New Haven Bond Interest income 250
Mortgage Interest on their personal residence 21,000
Real Estate Taxes on their personal residence 8,600
Cash charitable contributions 3,200

Based on the following information, prepare the 2020 Forms 1040 including Schedules 1 & 2 in required, Schedules A, C, E, & SE for Harry & Sally Nelsen Show your calculations for amounts entered on the forms. Schedule E requires the calculation of depreciation; however, the Form 4562 does not need to be completed. You are required to show your calculation of depreciation of both the real property and the personal property (which requires the MACRS Tables using the half year convention).

Answer rating: 100% (QA)

Based on the following information prepare the 2020 Forms 1040 including Schedules 1 2 in required Schedules A C E SE for Harry Sally Nelsen Show your ... View the full answer