Comprehensive Problem 7-1
Sherry Hopson owns a retail family clothing store. Her store is located at 4321 Heather Drive, Henderson, NV 89002. Her employer identification number is 95-1234321 and her Social Security number is 123-45-6789. Sherry keeps her books on an accrual basis. The income and expenses for the year are:
| Gross sales | | | $351,200 | | Returns and allowances | | | (4,500) | | Net sales | | | $346,700 | | Expenses: | | | | | Beginning inventory (at cost) | $ 84,300 | | | | Add: purchases | 100,700 | | | | Cost of goods available for sale | 185,000 | | | | Less: ending inventory (at cost) | 65,000 | | | | Cost of goods sold | | | $120,000 | | Rent | | | 28,800 | | Insurance | | | 1,500 | | Legal and accounting fees | | | 2,800 | | Payroll | | | 42,100 | | Payroll taxes | | | 3,440 | | Utilities | | | 1,850 | | Office supplies | | | 750 | | Advertising | | | 2,100 | |
On June 1 of this year, Sherry purchased the following new assets for the store:
| | Depreciable Basis | Recovery Period | | Heavy-duty truck | $31,000 | | 5 years | | Desk and file cabinets | 17,000 | | 7 years | | Computer | 3,000 | | 5 years | |
The truck is not considered a passenger automobile for purposes of the luxury automobile limitations. No Section 179 election is made.
Required:
Assuming that all other assets are fully depreciated and Sherry elects out of bonus depreciation and does not make the election to expense, complete her 2015 Schedule C and Form 4562.
Make realistic assumptions about any missing data. If required round any computations to the nearest dollar. Enter all amounts as positive numbers.
Click here to access the depreciation table to use for this problem.
LINES NEEDED FOR SCHEDULE C: 1, 2, 3, 4, 5, 7, 8, 13, 15, 17, 18, 20B, 23, 25, 26, 28, 29, 31, 35, 36, 40, 41, 42
| SCHEDULE C (Form 1040) Department of the Treasury Internal Revenue Service (99) | Profit or Loss From Business (Sole Proprietorship) Information about Schedule C and its separate instructions is at www.irs.gov/schedulec. Attach to Form 1040, 1040NR, or 1041; partnerships generally must file Form 1065. | OMB No. 1545-0074 | | 2015 Attachment Sequence No. 09 | | Name of proprietor Sherry Hopson | Social security number (SSN) 123-45-6789 | | A | Principal business or profession, including product or service (see instructions) Retail Family Clothing Store | B Enter code from instructions 448140 | | C | Business name. If no separate business name, leave blank. Family Clothing Store | D Employer ID number (EIN), (see instr.) 951-23-4321 | | E | Business address (including suite or room no.) | 4321 Heather Drive | | | City, town or post office, state, and ZIP code | Henderson, NV 89002 | | | F | Accounting method: (1) Cash (2) Accrual (3) Other (specify) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ | | G | Did you "materially participate" in the operation of this business during 2015? If "No," see instructions for limit on losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | Yes | No | | H | If you started or acquired this business during 2015, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | | | | I | Did you make any payments in 2015 that would require you to file Form(s) 1099? (see instructions) . . . . . . . . . . | Yes | No | | J | If "Yes," did you or will you file required Forms 1099? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Yes | No | | 1 | 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 " employee" box on that form was checked . . . . . . . . . . . . . . . | | 1 | | | | 2 | Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 2 | | | | 3 | Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 3 | | | | 4 | Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 4 | | | | 5 | Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 5 | | | | 6 | Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) . . . . . . . | 6 | | | | 7 | Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | 7 | | | | Part II | Expenses. Enter expenses for business use of your home only on line 30. | | 8 | Advertising . . . . . . . . . . . . . . . | 8 | | | 18 | Office expense (see instructions) . . . . | 18 | | | | 9 | Car and truck expenses (see | | | | 19 | Pension and profit-sharing plans . . . . | 19 | | | | | instructions) . . . . . . . . . . . . . . . | 9 | | | 20 | Rent or lease (see instructions): . . . . . | | | | | 10 | Commissions and fees . . . . . . . | 10 | | | a | Vehicles, machinery, and equipment | 20a | | | | 11 | Contract labor (see instructions) | 11 | | | b | Other business property . . . . . . . . . . . | 20b | | | | 12 | Depletion . . . . . . . . . . . . . . . . | 12 | | | 21 | Repairs and maintenance . . . . . . . . . | 21 | | | | 13 | Depreciation and section 179 | | | | 22 | Supplies (not included in Part III) . . . | 22 | | | | | expense deduction (not included | | | | 23 | Taxes and licenses . . . . . . . . . . . . . . . | 23 | | | | | in Part III) (see instructions) . . . | 13 | | | 24 | Travel, meals, and entertainment: . . . | | | | | 14 | Employee benefit programs | | | | a | Travel . . . . . . . . . . . . . . . . . . . . . . . . | 24a | | | | | (other than on line 19) . . . . . . . | 14 | | | b | Deductible meals and | | | | | 15 | Insurance (other than health) . . | 15 | | | | entertainment (see instructions) . . . . | 24b | | | | | 16 | Interest: . . . . . . . . . . . . . . . . . | | | | 25 | Utilities . . . . . . . . . . . . . . . . . . . . . . | 25 | | | | a | Mortgage (paid to banks, etc.) . . | 16a | | | 26 | Wages (less employment credits) . . . . | 26 | | | | b | Other . . . . . . . . . . . . . . . . . . . | 16b | | | 27a | Other expenses (from line 48) . . . . . | 27a | | | | 17 | Legal and professional services | 17 | | | b | Reserved for future use . . . . . . . . . . | 27b | | | | 28 | Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . . . . . . . . . . | 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: and (b) the part of your home used for business: . Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 30 | | | | 31 | Net profit or (loss). Subtract line 30 from line 29. | | | | | | | If a profit, enter on both Form 1040, line 12 (or Form 1040NR, line 13) 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. | | | 31 | | | | | | | | 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 Form 1040, line 12, (or Form 1040NR, line 13) 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. | 32a 32b | All investment is at risk. Some investment is not at risk. | | For Paperwork Reduction Act Notice, see the separate instructions. | Cat. No. 11334P | Schedule C (Form 1040) 2015 | |
| Schedule C (Form 1040) 2015 | Sherry Hopson | 123-45-6789 | Page 2 | | Part III | Cost of Goods Sold (see instructions) | | 33 | Method(s) used to | | | value closing inventory: a Cost b Lower of cost or market c Other (attach explanation) | | 34 | Was there any change in determining quantities, costs, or valuations between opening and closing inventory? | | | If "Yes," attach explanation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Yes No | | 35 | Inventory at beginning of year. If different from last year's closing inventory, attach explanation . . . . . . . | 35 | | | | 36 | Purchases less cost of items withdrawn for personal use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 36 | | | | 37 | Cost of labor. Do not include any amounts paid to yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 37 | | | | 38 | Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 38 | | | | 39 | Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 39 | | | | 40 | Add lines 35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 40 | | | | 41 | Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 41 | | | | 42 | Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 . . . . . . . . . . . . . . . . | 42 | | | | Part IV | 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 2015, enter the number of miles you used your vehicle for: | | a | Business b Commuting (see instructions) c Other | | 45 | Was your vehicle available for personal use during off-duty hours? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Yes | No | | 46 | Do you (or your spouse) have another vehicle available for personal use? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Yes | No | | 47a | Do you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Yes | No | | b | If "Yes," is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Yes | No | | Part V | Other Expenses. List below business expenses not included on lines 826 or line 30. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | 48 | Total other expenses. Enter here and on line 27a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 48 | | | | Schedule C (Form 1040) 2015 | |
LINES NEEDED FOR FORM 4562: 19B, 19C ALL THE WAY ACROSS
| Form 4562 Department of the Treasury Internal Revenue Service (99) | Depreciation and Amortization (Including Information on Listed Property) Attach to your tax return. Information about Form 4562 and its separate instructions is at www.irs.gov/form4562. | OMB No. 1545-0172 | | 2015 Attachment Sequence No. 179 | | Name(s) shown on return Sherry Hopson | Business or activity to which this form relates Retail family clothing store | Identifying number 123-45-6789 | | Part I | Election To Expense Certain Property Under Section 179 | | | Note: If you have any listed property, complete Part V before you complete Part I. | | 1 | Maximum amount (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 1 | | | 2 | Total cost of section 179 property placed in service (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 2 | | | 3 | Threshold cost of section 179 property before reduction in limitation (see instructions) . . . . . . . . . . . . . . . . . . . | 3 | | | 4 | Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . | 4 | | | 5 | Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married filing separately, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 5 | | | 6 | (a) Description of property | (b) Cost (business use only) | (c) Elected cost | | | | | | | | | | | | | | | 7 | Listed property. Enter the amount from line 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 7 | | | | 8 | Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 . . . . . . . . . . . . . . . . . . . . . . | 8 | | | 9 | Tentative deduction. Enter the smaller of line 5 or line 8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 9 | | | 10 | Carryover of disallowed deduction from line 13 of your 2014 Form 4562 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 10 | | | 11 | Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions) | 11 | | | 12 | Section 179 expense deduction. Add lines 9 and 10, but do not enter more than line 11 . . . . . . . . . . . . . . . . . . . | 12 | | | 13 | Carryover of disallowed deduction to 2016. Add lines 9 and 10, less line 12 | | 13 | | | | | Note: Do not use Part II or Part III below for listed property. Instead, use Part V. | | Part II | Special Depreciation Allowance and Other Depreciation (Do not include listed property.) (See instructions.) | | 14 | Special depreciation allowance for qualified property (other than listed property) placed in service during the tax year (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 14 | | | 15 | Property subject to section 168(f)(1) election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 15 | | | 16 | Other depreciation (including ACRS) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 16 | | | Part III | MACRS Depreciation (Do not include listed property.) (See instructions.) | | Section A | | 17 | MACRS deductions for assets placed in service in tax years beginning before 2015 . . . . . . . . . . . . . . . . . . . . . . . | 17 | | | 18 | If you are electing to group any assets placed in service during the tax year into one or more general asset accounts, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | | Section BAssets Placed in Service During 2015 Tax Year Using the General Depreciation System | | (a) Classification of property | (b) Month and year placed in service | (c) Basis for depreciation (business/investment use onlysee instructions) | (d) Recovery period | (e) Convention | (f) Method | (g) Depreciation deduction | | 19a | 3-year property | | | | | | | | b | 5-year property | | | | | | | | c | 7-year property | | | | | | | | d | 10-year property | | | | | | | | e | 15-year property | | | | | | | | f | 20-year property | | | | | | | | g | 25-year property | | | 25 yrs. | | S/L | | | h | Residential rental property | | | 27.5 yrs. | MM | S/L | | | | | | 27.5 yrs. | MM | S/L | | | i | Nonresidential real property | | | 39 yrs. | MM | S/L | | | | | | | MM | S/L | | | Section CAssets Placed in Service During 2015 Tax Year Using the Alternative Depreciation System | | 20a | Class life | | | | | S/L | | | b | 12-year | | | 12 yrs. | | S/L | | | c | 40-year | | | 40 yrs. | MM | S/L | | | Part IV | Summary (See instructions.) | | 21 | Listed property. Enter amount from line 28 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 21 | | | 22 | Total. Add amounts from line 12, lines 14 through 17, lines 19 and 20 in column (g), and line 21. Enter here and on the appropriate lines of your return. Partnerships and S corporationssee instructions . . . . . . . . . . . . . . . . . | 22 | | | 23 | For assets shown above and placed in service during the current year, enter the portion of the basis attributable to section 263A costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 23 | | | | For Paperwork Reduction Act Notice, see separate instructions. | Cat. No. 12906N | Form 4562 (2015) | |
| Form 4562 (2015) | Sherry Hopson | 123-45-6789 | Page 2 |
| Part V | Listed Property (Include automobiles, certain other vehicles, certain aircraft, certain computers, and property used for entertainment, recreation, or amusement.) |
| |
| | Note: For any vehicle for which you are using the standard mileage rate or deducting lease expense, complete only 24a, 24b, columns (a) through (c) of Section A, all of Section B, and Section C if applicable. |
| Section ADepreciation and Other Information (Caution: See the instructions for limits for passenger automobiles.) |
| 24a Do you have evidence to support the business/investment use claimed? Yes No | 24b If "Yes," is the evidence written? Yes No |
| (a) Type of property (list vehicles first) | (b) Date placed in service | (c) Business/ investment use percentage | (d) Cost or other basis | (e) Basis for depreciation (business/investment use only) | (f) Recovery period | (g) Method/ Convention | (h) Depreciation deduction | (i) Elected section 179 cost |
| 25 | Special depreciation allowance for qualified listed property placed in service during the tax year and used more than 50% in a qualified business use (see instructions) . . . . . . . . . . . . . . | 25 | | |
| 26 | Property used more than 50% in a qualified business use: |
| | | % | | | | | | |
| | | % | | | | | | |
| | | % | | | | | | |
| 27 | Property used 50% or less in a qualified business use: |
| | | % | | | | S/L - | | |
| | | % | | | | S/L - | | |
| | | % | | | | S/L - | | |
| 28 | Add amounts in column (h), lines 25 through 27. Enter here and on line 21, page 1 . . . . . . . . | 28 | | |
| 29 | Add amounts in column (i), line 26. Enter here and on line 7, page 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 29 | |
| Section BInformation on Use of Vehicles |
| Complete this section for vehicles used by a sole proprietor, partner, or other "more than 5% owner," or related person. If you provided vehicles to your employees, first answer the questions in Section C to see if you meet an exception to completing this section for those vehicles. |
| | (a) Vehicle 1 | (b) Vehicle 2 | (c) Vehicle 3 | (d) Vehicle 4 | (e) Vehicle 5 | (f) Vehicle 6 |
| 30 | Total business/investment miles driven during the year (do not include commuting miles) . . . | | | | | | |
| 31 | Total commuting miles driven during the year | | | | | | |
| 32 | Total other personal (noncommuting) miles driven . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | | | | | |
| 33 | Total miles driven during the year. Add lines 30 through 32 . . . . . . . . . . . . . . . . . . . . . . . . . . | | | | | | |
| 34 | Was the vehicle available for personal use during off-duty hours? . . . . . . . . . . . . . . . . . . | Yes | No | Yes | No | Yes | No | Yes | No | Yes | No | Yes | No |
| | | | | | | | | | | | | |
| 35 | Was the vehicle used primarily by a more than 5% owner or related person? . . . . . . . . . . . . . | | | | | | | | | | | | |
| 36 | Is another vehicle available for personal use? | | | | | | | | | | | | |
| Section CQuestions for Employers Who Provide Vehicles for Use by Their Employees |
| Answer these questions to determine if you meet an exception to completing Section B for vehicles used by employees who are not more than 5% owners or related persons (see instructions). |
| 37 | Do you maintain a written policy statement that prohibits all personal use of vehicles, including commuting, by your employees? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | Yes | No |
| | |
| 38 | Do you maintain a written policy statement that prohibits personal use of vehicles, except commuting, by your employees? See the instructions for vehicles used by corporate officers, directors, or 1% or more owners . . . . . . . . . | | |
| 39 | Do you treat all use of vehicles by employees as personal use? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | |
| 40 | Do you provide more than five vehicles to your employees, obtain information from your employees about the use of the vehicles, and retain the information received? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | | |
| 41 | Do you meet the requirements concerning qualified automobile demonstration use? (See instructions.) . . . . . . . . . . . | | |
| | Note: If your answer to 37, 38, 39, 40, or 41 is "Yes," do not complete Section B for the covered vehicles. | |
| | (a) Description of costs | (b) Date amortization begins | (c) Amortizable amount | (d) Code section | (e) Amortization period or percentage | (f) Amortization for this year |
| 42 | Amortization of costs that begins during your 2015 tax year (see instructions): |
| | | | | | | |
| | | | | | | |
| 43 | Amortization of costs that began before your 2015 tax year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 43 | |
| 44 | Total. Add amounts in column (f). See the instructions for where to report . . . . . . . . . . . . . . . . . . . . . . . . | 44 | |
| Form 4562 (2015) |
