2021 Form 1040 INDIVIDUAL TAX RETURN WITH SOLE PROPRIETORSHIP

NOTE: THIS IS FOR TAX YEAR 2021.

Facts

William Spicer (123-45-5789) and June Spicer (937-65-4321) have two dependent children, Sophie (236-52-6587) age 9 and Carl (236-52-6588) age 7, both of whom live at home. William operates a gourmet market in Raleigh, NC, Bills Market, as an accrual-basis sole proprietorship.

The information on gross sales, expenses, and property transactions is shown below. William receives no salary and therefore, there is no related FICA tax for him. The Market sold a unique piece of equipment for $13,000. It had originally cost $5,000 when purchased on March 5, 2017. It had an adjusted basis of $3,000 when sold on August 15, 2021.

The Market also sold a display case for $1,000 on December 12, 2021, that had cost $12,000 when purchased on June 6, 2015 which had an adjusted basis of $4,000 when sold. The gains or losses on these asset sales are the same for tax and financial accounting. The business complies with all Form 1099 requirements.

William is also a 10 percent shareholder in Imagineers Corporation, an S corporation, but takes no active role in the business. He received a Schedule K-1 from this S corporation reporting $18,000 in ordinary business income.

June is a General Partner in The Bridal Shop Partnership. She worked 3 days a week at the shop and received a Schedule K-1 reporting a $12,000 guaranteed payments and $8,000 in ordinary business income. June paid $3,800 for after-school and summer child care while she worked.

2021 financial results for Bills Market is as follows:

Gross sales ($1,300,000 from credit card sales) 3,700,000

Merchandise purchases 2,480,000

Expenses:

Advertising 40,000

Charitable contributions 20,000

Cleaning/maintenance 12,000

Depreciation (MACRS pre-2021 purchases) 3,000

Section 179 expense (2/1/21 display case) 5,000

Payroll taxes 18,000

Health insurance 15,000*

Insurance (excludes health) 18,000

Interest expense 1,000

Licenses/fees 4,000

Meals/entertainment 10,000

Office expenses 14,000

Rent 120,000

Salary/wages 210,000

Travel 8,000

Utilities 32,000

*Includes $3,000 for health insurance for William and his family.

The following information pertains to the completion of the Spicers personal tax return:

Interest income $ 500

Dividend income (all qualified) 1,300

Unreimbursed doctors bills 8,200

Unreimbursed hospital bills 9,000

Unreimbursed dental bills 2,000

Mortgage interest 14,000

Real estate taxes 7,800

Contributions to their church 1,500

Investment advisor fees $3,659

The Spicers sold 10,000 shares of ABC stock on February 2, 2021 for $4,000. They had purchased the stock on August 1, 2012 for $18,000. During 2021, the Spicers paid the balance due of $300 with their 2020 North Carolina state income tax return and made $4,600 in estimated payments for 2021 to NC. This amount exceeds their alternate state sales tax deduction.

June is a volunteer at the childrens school two days a week tutoring at-risk students. Her total mileage for her trips to and from the school was 1,200 miles. She also had unreimbursed out-of-pocket expenses for teaching materials for these students of $232. Additionally, the Spicers contribute $3,000 each to regular IRAs.

The Spicers made 2021 Federal quarterly estimated tax payments of $17,500 each quarter. All payments were made when due. Any refund that the Spicers have for 2021 is to be applied to their 2022 estimated taxes.

2021 Form 1040 and Related Forms and Schedules

Form 1040: U.S. Individual Income Tax Return & Schedules 1-3

Schedule A: Itemized Deductions

Schedule C: Profit or Loss from Business (Sole Proprietorship)

Schedule D: Capital Gains and Losses

Schedule E: Supplemental Income and Loss

Schedule SE: Self-Employment Tax (2)

Form 2441: Child and Dependent Care Expenses

Form 4562: Depreciation and Amortization

Form 4797: Sales of Business Property

Form 8582: Passive Activity Loss Limitations

Form 8949: Sales and Other Disposition of Capital Assets

The Spicers will prepare only one joint tax return, their Form 1040, along with all the required schedules and forms including the Schedule C where the income and expenses for Bills Market are reported.

A Form 4797 is completed for the business property dispositions; the sale of the stock is entered on the Form 8949; the net gain on the equipment disposition and the gain or loss on the stock are both included on the Spicers Schedule D.

The depreciation recapture, if any, is also entered on Form 4797 and is transferred directly to the Spicers Form 1040.

Two other items are not included on the Schedule Cthe health insurance for William and his family (which is deducted on page 1 of the Form 1040 as a deduction for AGI) and the charitable contribution (which is included with the Spicers personal charitable deductions on their Schedule A).

June is allowed to deduct 14 cents per mile for the 1,200 miles driven ($168) for her volunteer work along with her out-of-pocket charitable expenses of $232.

Their other itemized deductions are $14,000 for mortgage interest, $7,800 for R/E taxes and $680 for Personal Property taxes.

Their dividend income is taxed at the Capital Gain rate, while the rest of their income is taxed at the regular rates.

*ANSWERS MUST BE WRITTEN ON THE NECESSARY FORMS:

2021 Form 1040 and Related Forms and Schedules

Form 1040: U.S. Individual Income Tax Return & Schedules 1-3

Schedule A: Itemized Deductions

Schedule C: Profit or Loss from Business (Sole Proprietorship)

Schedule D: Capital Gains and Losses

Schedule E: Supplemental Income and Loss

Schedule SE: Self-Employment Tax (2)

Form 2441: Child and Dependent Care Expenses

Form 4562: Depreciation and Amortization

Form 4797: Sales of Business Property

Form 8582: Passive Activity Loss Limitations

Form 8949: Sales and Other Disposition of Capital Assets