Form 1065 Practice Tax Return

Facts in 2016:

• ABC LLP, a limited liability partnership, 123 Oak Dr Houston TX 77002
• EIN-74-1111111
• Date Business Started 1/1/2000
• Business Activity, retail sales
• Business Code 99999
• The partnership is a cash basis business
• Total Assets $5,000,000
• Gross Receipts $1,000,000
• Cost of Goods Sold $400,000 (assume no beginning and ending inventory and purchases are $400,000)
• ABC LLP uses the lower of cost or market method for valuing inventory and also uses the FIFO method for determining the cost of goods sold
• Guaranteed payment paid to Bee Jones, 40% partner, SSN-222-22-2222, was $200,000
• Salaries and wages paid to employees was $50,000
• Office Rent paid for office was $10,000
• Supplies expense totaled $40,000
• The partnership manufacturers clothing.
• Partner ownership (capital, profit and loss) is as follows:
• Bee Jones40%
• John Smith40%
• Julie Smart20%
• All partners materially participate in the partnership business.

The partnership has engaged you to prepare the 2016 Form 1065 (pages 1, 2 and 4).Also, prepare the Schedule K-1 for Bee Jones, 40% partner.You will not be preparing the Form 1125-A for Cost of Goods Sold.Assume the partnership has no debts.Bee Jones had a beginning capital balance of $10,000.Be sure to sign the return as the preparer.Do not put your SSN # on the Form 1065.

ACNT 1347

Tax Form 1065 Problem Instructions

Since partnerships are a flow through entity, the entity does not pay income tax.The income tax on the income from the partnership is paid by the individual partners.However, the partnership must file an informational return with the IRS.The tax form filed by a partnership is tax form 1065.

For this return, you will need the following forms

-Form 1065 U.S. Return of Partnership Income

-Schedule K-1 for Form 1065 Make sure you select the K-1 for tax form 1065.

These forms can be found on the IRSs website at irs.gov or in Connect, under Library, Student Resources.

A couple of items to remember when preparing this assignment are the following:

Partnership Information

On page 1, complete lines A-I using the information provided.

Income

Report the income and cost of goods sold on lines 1 - 8 on page 1.

Deductions

The expenses are reported on lines 9 21 on page 1.

Guaranteed Payments The guarantee payment will be reported on page 1 of tax form 1065, and also, on form Schedule K-1 for the partner or partners who receive guaranteed payments.

Schedule K and Schedule K-1s - Since a partnership is a flow-through entity, each partner will receive a Schedule K-1 that reports their share of the partnerships income or loss, as well as, separately stated items.This is the form that the partner will use to prepare his or her individual tax return.The total of all of the Schedule K-1s will equal the total of the items on Schedule K on page 4 of the tax form 1065.For this problem, you only need to prepare the Schedule K-1 for Bee.

Schedule K Form 1065 Page 4

Line 1 As stated report the amount from page 1, line 22.

Line 4 Same as the amount reported on page 1, line 10.

Line 14a - The IRS provides a worksheet to help calculate the net earnings from self-employment for line 14a.The worksheet is located in the instructions for tax form 1065 on page 34-35 (www.irs.gov, Forms and Pubs).The instructions will also instruct on how to enter the self-employment income on Schedule K-1 on line 14 and what letter code to use.

Line 14c Since there is no farm income, all of the income is considered nonfarm income.

Schedule K-1 for Bee

Complete lines A-K with the information provided.

Line L Enter the partners beginning capital account balance, current year increase and ending capital account balance.

Line 1- Enter the partners share of the amount on line 1 from Schedule K on page 4 of tax form 1065.

Line 4 - Enter the partners share of the amount on line 4 from Schedule K on page 4 of tax form 1065.Hint this will be the amount of any guarantee payments paid to the partner.

Line 14 - Enter the partners share of the amount on lines 14a and 14c from Schedule K on page 4 of tax form 1065.Hint Line 14a on Schedule K-1 will include the partners share of ordinary income or loss plus any guarantee payments paid to the partner.