SOLE PROPRIETORSHIP TAX PROBLEM

Business Taxes – Fall 2015 Page 1

SOLE PROPRIETORSHIP TAX PROBLEM Scenario and Requirements

Scenario

Maxine Solo is single, 42 years of age, and does not have any dependents. Her address is 412 Tax Drive, St. Louis, MO 63141. Her social security number is 345-67- 8910. She is the sole proprietor of a consulting business that she started on January 1, 2011. The business uses the cash method of accounting. For 2014, her gross receipts were $52,000 and interest of $30 was earned on her business checking account. Expenses paid by her business follow.

Advertising $ 420

Supplies 2,810

Professional dues and publications 650

Donation to United Way 80

Travel (other than meals) 700

Meals and entertainment 600

Health insurance premiums (for Maxine) 3,400

Traditional IRA contribution 2,500 Maxine drives her 2009 Honda Civic for business purposes, and she will use the standard mileage rate instead of actual expenses for car expenses. During the year, Maxine drove her car a total of 16,200 miles (9,600 business miles and 6,600 personal miles) per her mileage log. She paid $100 for business-related parking and tolls and $120 in fines for speeding tickets when she was late for appointments with clients. Maxine’s office, which she uses exclusively for business, is located in her home, occupying 500 of 2,000 available square feet. The adjusted basis of Maxine’s home when she began using it for business was $222,800, including land with a basis of $10,000. Her total (unallocated) expenses for her home are:

Mortgage loan interest $ 6,100

Property taxes 2,300

Insurance 700

Repairs and maintenance 300

Utilities 1,780

Helpful Housekeepers (home cleaners) 800

Cost of interior painting (home office only) 200 Maxine will allocate her actual expenses to calculate her home office deduction instead of using the simplified option.

Business Taxes – Fall 2015 Page 2

Maxine contributed $1,000 to her church during the year and received a contribution statement from the church financial secretary. She also made the following federal and state estimated tax payments for tax year 2014:

Amount Date Paid Federal State

April 15, 2014 $ 1,700 $ 500

June 15, 2014 1,700 500

September 15, 2014 1,700 500

January 15, 2015 1,700 500 Required

Use the taxpayer information for Maxine to prepare the following tax forms for 2014:

• Form 1040 • Schedule A • Schedule C • Schedule SE • Form 8829

Assume that the deduction for state income taxes is greater than the general sales tax deduction (Schedule A, line 5) and that Maxine is not subject to the alternative minimum tax. Although Maxine might be eligible for certain tax credits on Form 1040, lines 48 through 54, do not complete these lines. Prepare Maxine’s tax return by typing the necessary information on the PDF tax forms provided on the IRS website. Submit a hard copy of the tax return at the start of class on October 8 (Session 4). Also if deemed necessary, submit documentation supporting any specific tax form line item amounts that may not otherwise be apparent. Check Figures Form 1040, line 37 $ 28,595

Schedule C, line 28 10,356

Form 8829, line 35 4,559