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 Form 1040 Schedules 1 Additional Income and Adjustments to Income Form 1040 Schedules 2 Additional Taxes Form 1040 Schedules 3 Additional Credits and Payments Form 1040 Schedule A Itemized Deductions Form 1040 Schedule C Profit or Loss from Business (Sole Proprietorship) Form 1040 Schedule D Capital Gains and Losses Form 1040 Schedule E Supplemental Income and Loss Form 1040 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

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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 Form 1040   Schedules 1 Additional Income and Adjustments to Income Form 1040   Schedules 2  Additional Taxes Form 1040   Schedules 3  Additional Credits and Payments Form 1040   Schedule A  Itemized Deductions Form 1040   Schedule C  Profit or Loss from Business (Sole Proprietorship) Form 1040   Schedule D  Capital Gains and Losses Form 1040   Schedule E  Supplemental Income and Loss Form 1040   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

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2021 Form 1040 INDIVIDUAL TAX RETURN WITH SOLE PROPRIETORSHIP NOTE: THIS IS FOR TAX YEAR 2021. Facts

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