ACT 4494 GSU Profit or Loss From Business Questions

ACT 4494
Tax Return 4-Schedule C
Fall 2023
NAME ___________________________________________________________________________
Mrs. Specter’s Psychic Services
Tentative profit or loss (Line 29, Schedule C) $ _______________________________
I spent approximately ____________________ hours on this return.
Donna is responsible for paying self-employment taxes on her Schedule C income. What is the
deductible portion of these taxes? _________________________________
What is the tax liability? ________________________________________
Should (could) any tax expense be included in her Schedule C? If so, what kind?
Are there any deductions related to Donna’s Schedule C that are taken on her 1040?
If so, what are they, and where are they located?
Deduction (item and amount)
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
___________________________________
Tax return location (Form/line #)
_____________________________________
_____________________________________
_____________________________________
_____________________________________
_____________________________________
_____________________________________
I worked on this return with:
________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
_________________________________________________________________________________________
Revenues
$
228,300
In July of 2022, Donna Specter started a sole proprietorship called Mrs. Specter’s Psychic Services. MSPS uses
Cash collected,
171,500
Interest
expense including advance payments
$
2,200
the cash method of accounting and Donna has given you the following financial information for the year.
Loan proceeds
72,000
Storage
rent ($400 per month)
8,000
Donna needs you to prepare her 2022 Schedule C for her using all the information that follows. She also has the
Contract labor (1099’s provided to all workers)
10,950
following additional questions and requests for you.
Liability insurance premiums ($350 per month)
4,200
Revenues
$
243,500
1. Supplies
Include (three
a detailed
account
for the
Expense account, per Donna’s records. In a
Office
quarters
will belisting
used this
year)Miscellaneous
400
Health insurance
for Rachel
2,500
column beside
this detail, list the expenses in the Miscellaneous
Expense account that are allowed by the
Interest
expense
$
2,200
Bad
debtIRS.
expense
4,000
Storage
rent ($400
per of
month)
8,000
Depreciation
2. Provide
a list
expenses not deducted on Schedule C1,265
and
a list of revenues not includible on Schedule
Contract
labor
(1099’s
provided
to
all
workers)
11,150
Miscellaneous
Expensesthe Schedule C is only a small part of26,604
C. Remember,
the whole tax return, so please answer the
Liabilityfollowing
insurance
premiums
($350
per
month)
4,200 be deducted if they were deductible?
Inventory
Purchasesfor
50,000
your client. Where would those expenses would
Office
Supplies
(three
quarters
were
used
this
year)
400 the revenues would be included? Are any
Legal fees
for building
purchase
Which
expenses
are not deductible anywhere? Where3,000
would
Health insurance
for Rachel
2,500
Building
downpayment
40,000
cash
inflows
not required to be included on a tax return?
Please clearly label these lists and present them
Bad debtinexpense
4,000
Mortgage
payments
3,100
an organized fashion as your client has limited time and attention and is, after all, paying for your
Depreciation
1,265
expertise.
Miscellaneous
Expenses
Total
156,219
3. Expenses
Calculate Donna’s self-employment taxes and indicate
where both parts of the calculation show up on
Inventory Purchases
50,000
the Form 1040 (part of the return and line number).
Legal
fees
for
building
purchase
3,000
Net Income
72,081
Use the
information provided in the income statement and the
additional information received from your
Building
downpayment
20,000
client
that
follows
to
prepare
your
client’s
Schedule
C
and
to
answer
her questions, in addition to the
Mortgage
payments
4,100
Beginning Inventory
–
requirements
Ending
Inventory from your supervisor.
Total Expenses
35,000
110,815
Mrs. Specter’s Psychic
Services
132,685
Net Income
Cash collected, including advance payments
Advance payments
Money owed
Door prize
Loan proceeds
Revenues
16,500
600
540
1,000
30,000
$
Contract labor (1099’s provided to all workers)
Liability insurance premiums ($350 per month)
Office Supplies (three quarters will be used this year)
Health insurance for Donna
Interest
Bad debt expense
Depreciation
Miscellaneous Expenses
Inventory Purchases
Rent
48,640
1,264
4,200
400
2,500
872
60
238
30,197
1,000
7,200
Total Expenses
$
47,931
Net Income
$
709
Beginning Inventory
Ending Inventory
700
Client notes:
MSPS collected $16,500 in cash for consulting jobs completed during the year (2022) and an additional $600 in
cash as an advance payment for Donna working a corporate party in the next year (2023). The corporation will
pay Donna an additional $400 after the party is over. Customers owe MSPS $200 at the end of the year for
projects completed this year, and while Donna isn’t sure which bills will eventually be paid, she expects to
collect all but about $60 of these outstanding revenues next year.
As Donna is now self-employed she pays for her own health insurance as a sole proprietor. She paid for this
policy from her business checking account. Her premiums this year were $2,500.
At year end, MSPS had a small inventory of tshirts, bumper stickers and coozies to be used as promotional
items. Each item has the MSPS logo on it. The total paid for these items was $1,000. By the end of the year,
there was $700 left in inventory.
Donna rented a cute little loft to use as her business space. She pays $1,200 per month.
Donna became interested and active in politics and contributed $2,222 to the August mayoral campaign of an
independent candidate. She made the contribution because she believed that, if elected, the candidate would
institute local policies beneficial to her business. The candidate lost the election and immediately started a grass
roots lobbying organization. The purpose of the organization is to keep track of elected officials’ campaign
promises and report to the public when they vote contrary to their stated campaign promises. In September,
Donna paid $1,650 in dues to join the lobbying organization. These expenditures are included in Miscellaneous
Expense.
Donna went to a psychic’s conference in Boston in December. Harvey went with her so that he could visit his
brother. Donna included the following travel costs (for both her and Harvey) in the Miscellaneous Expense
account.
Travel costs consisted of the following: airfare of $1280, $900 for four days and three nights at the College
Club of Boston, meals of $2,000 over the four days, and business center fees of $45 for sending faxes and
printing documents so that MSPS’s could keep operating while Donna was away.
Of the four days she spent in Boston, three of those days were spent attending the conference. She could have
come home earlier, but she decided to stay the extra day and sightsee in Boston. She caught an Uber that took
her on a tour of the historic district and cost her $250. The good news is, Donna won a door prize drawing for
tourists at the Boston Public Market. The prize was $1,000, which she contributed to her Schedule C business to
help with cash flow. She recorded this on her income statement as an offset to the Miscellaneous Expense with
her travel costs.
In October, Donna purchased 12 months of liability insurance. This was to keep clients from sung her in the
event her predictions turned out to be incorrect. The policy cost $4,200, ($350 per month).
In order to meet potential rich clients, Donna paid $5,000 in dues to join the Grand Oaks Country Club on
Staten Island. This year she also paid $2,200 in greens fees and court fees when golfing and playing tennis with
clients and potential clients. She plays golf or tennis with them when they need her help with complicated life
questions. She recorded the country club costs in Miscellaneous Expense. Because of her time spent at the
country club, Donna must meet the highest standards of fashion and beauty. As she has always been kind of a
fashion plate and clothes horse, this is not a hardship. It’s better now though since she can spend the same
money she did before and deduct it as a business cost! She gets her hair cut at the most stylish salon in town and
has spent $2000 there since July. Regular salon haircuts would have cost $320. Because of this, Donna has
recorded the $2000 in salon fees as a business expense, in, you guessed it, the Miscellaneous Expense account.
Her sporty wardrobe for her time at the Country Club cost her $6,000, also recorded in Miscellaneous Expense.
Donna also purchased uniforms for herself. Her uniform is a black sheath dress from Bergdorf Goodman’s, and
black Louboutin heels. She also wears a hot pink silk shrug with custom embroidery that says Mrs. Specter’s
Psychic Services with an embroidered rose. The uniforms weren’t cheap: the embroidery alone cost $100 per
shrug, the dresses were $750 each, the shrugs were $200 each (without the embroidery!) and the shoes were
$1,200 per pair. Altogether, Donna purchased 2 pairs of shoes, 5 shrugs with embroidery, and 5 dresses. All
uniform costs were included in Miscellaneous Expense.
Since the early business costs were so high, Donna took out a loan to help her get started. She got a loan for
$30,000 which she recorded as revenue on her income statement. The loan cost her $872 in interest from July to
December. Any proceeds left from this loan were deposited into the business savings account for future use.
Please help Donna determine her tax basis net income from MSPS’s using a 2022 Form 1040 Schedule C.
Please present the required items to your client in the following order, stapled:
Cover sheet with the requested information
Handwritten Schedule C (all expenses from the tax basis income statement should be shown on the
Schedule C in the places the IRS wants them.)
Income statement, per Donna, in good form and the related tax basis income statement in good form
(Prepare the income statement using ALL the information given, as the client has provided it, without
making any adjustments for tax law. Then show the income statement as it should be following tax law.
Put the two income statements side by side for comparison.)
Miscellaneous Account detail (What costs are included per Donna’s Income statement?)
List of nondeductible expenses and nontaxable income
List of expenses not deductible and revenues not includible on Schedule C but deductible/includible
elsewhere on the return with the tax return location (form and line number).
Any workpapers required to reach your answers to the questions and/or to calculate the Schedule C results
*****Depreciation calculations are not required as Donna has provided them to you. Nor are any
additional forms for depreciation or asset purchases.
The only REQUIRED IRS form is the Schedule C.
******If you use Excel or Word to prepare your workpapers, please submit through Canvas when you
submit your paper copy to me. As always, each student is required to prepare their own workpapers and
returns.
SCHEDULE C
(Form 1040)
Profit or Loss From Business
Department of the Treasury
Internal Revenue Service
OMB No. 1545-0074
2023
(Sole Proprietorship)
Attach to Form 1040, 1040-SR, 1040-SS, 1040-NR, or 1041; partnerships must generally file Form 1065.
Go to www.irs.gov/ScheduleC for instructions and the latest information.
Attachment
Sequence No. 09
Name of proprietor
Social security number (SSN)
A
Principal business or profession, including product or service (see instructions)
B Enter code from instructions
C
Business name. If no separate business name, leave blank.
D Employer ID number (EIN) (see instr.)
E
Business address (including suite or room no.)
F
G
City, town or post office, state, and ZIP code
Cash
(2)
Accrual
(3)
Other (specify)
Accounting method:
(1)
Did you “materially participate” in the operation of this business during 2023? If “No,” see instructions for limit on losses
.
Yes
No
H
I
J
If you started or acquired this business during 2023, check here . . . . . . . . . . .
Did you make any payments in 2023 that would require you to file Form(s) 1099? See instructions .
If “Yes,” did you or will you file required Form(s) 1099? . . . . . . . . . . . . . .
.
.
.
Yes
Yes
No
No
Part I
1
Income
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2
3
4
Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on
Form W-2 and the “Statutory employee” box on that form was checked . . . . . . . . .
Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . .
Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . .
Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . .
1
2
3
4
5
6
7
Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . .
Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) .
Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . .
.
.
.
5
6
7
8
Advertising .
9
Car and truck expenses
(see instructions) . . .
Commissions and fees .
Contract labor (see instructions)
Office expense (see instructions) .
Pension and profit-sharing plans .
18
19
Rent or lease (see instructions):
Vehicles, machinery, and equipment
Other business property . . .
20a
20b
Repairs and maintenance . . .
Supplies (not included in Part III) .
Taxes and licenses . . . . .
21
22
23
a
b
Travel and meals:
Travel . . . . . . . . .
Deductible meals (see instructions)
24a
24b
25
26
27a
Utilities . . . . . . . .
Wages (less employment credits)
Other expenses (from line 48) . .
25
26
27a
17
28
Other . . . . . .
16b
b Energy efficient commercial bldgs
Legal and professional services
17
deduction (attach Form 7205) . .
Total expenses before expenses for business use of home. Add lines 8 through 27b . . . . . . .
27b
28
29
Tentative profit or (loss). Subtract line 28 from line 7 .
29
30
Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829
unless using the simplified method. See instructions.
Simplified method filers only: Enter the total square footage of (a) your home:
Part II
10
11
Expenses. Enter expenses for business use of your home only on line 30.
.
.
.
.
12
13
Depletion . . . . .
Depreciation and section 179
expense
deduction
(not
included in Part III) (see
instructions)
. . . .
14
Employee benefit programs
(other than on line 19)
.
Insurance (other than health)
Interest (see instructions):
Mortgage (paid to banks, etc.)
15
16
a
b
8
18
19
9
10
11
20
12
21
22
23
13
24
a
b
14
15
16a
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and (b) the part of your home used for business:
Method Worksheet in the instructions to figure the amount to enter on line 30
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. Use the Simplified
. . . . . . .
31
Net profit or (loss). Subtract line 30 from line 29.
32
• If a profit, enter on both Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2. (If you
checked the box on line 1, see instructions.) Estates and trusts, enter on Form 1041, line 3.
• If a loss, you must go to line 32.
If you have a loss, check the box that describes your investment in this activity. See instructions.
• If you checked 32a, enter the loss on both Schedule 1 (Form 1040), line 3, and on Schedule
SE, line 2. (If you checked the box on line 1, see the line 31 instructions.) Estates and trusts, enter on
Form 1041, line 3.
• If you checked 32b, you must attach Form 6198. Your loss may be limited.
For Paperwork Reduction Act Notice, see the separate instructions.
.
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.
Cat. No. 11334P
}
}
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30
31
32a
32b
All investment is at risk.
Some investment is not
at risk.
Schedule C (Form 1040) 2023
Page 2
Schedule C (Form 1040) 2023
Part III
Cost of Goods Sold (see instructions)
33
Method(s) used to
value closing inventory:
34
Was there any change in determining quantities, costs, or valuations between opening and closing inventory?
If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . .
a
b
Cost
c
Lower of cost or market
Other (attach explanation)
35
Inventory at beginning of year. If different from last year’s closing inventory, attach explanation .
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35
36
Purchases less cost of items withdrawn for personal use
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36
37
Cost of labor. Do not include any amounts paid to yourself .
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37
38
Materials and supplies
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38
39
Other costs .
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39
40
Add lines 35 through 39 .
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40
41
Inventory at end of year .
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41
42
Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 .
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42
Part IV
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Yes
.
Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and
are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file
Form 4562.
/
/
43
When did you place your vehicle in service for business purposes? (month/day/year)
44
Of the total number of miles you drove your vehicle during 2023, enter the number of miles you used your vehicle for:
a
No
b Commuting (see instructions)
Business
c Other
45
Was your vehicle available for personal use during off-duty hours?
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Yes
No
46
Do you (or your spouse) have another vehicle available for personal use?.
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Yes
No
47a
Do you have evidence to support your deduction?
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Yes
No
If “Yes,” is the evidence written?
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Yes
No
b
Part V
48
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Other Expenses. List below business expenses not included on lines 8–26, line 27b, or line 30.
Total other expenses. Enter here and on line 27a
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48
Schedule C (Form 1040) 2023