How to fill out Schedule C, Schedule SE, Schedule 1, Schedule 2, Schedule 4 and Form 1040?

SSN for Tim is 555-22-3333

Tim Tebow, it turns out, is more than just one of college footballs all-time greatest quarterbacks. He also has a real knack for making wood carvings of religious and political leaders, and sports heroes. For example, in his spare time, Tim has carved likenesses of Ghandi, the Pope, John F. Kennedy Jr., and Emmitt Smith, former football star at University of Florida, NFL Hall-of-Fame player, and Season 3 Dancing With the Stars Mirror Ball Champion. Tim calls his business Tebow Carves Em and its located at 321 Sesame Street, Gainesville, FL 33333. Business has been brisk and Tim has hired you to help him complete his tax return for 2018.

Tim provides the following information with regards to Tebow Carves Em:

Tim uses the cash method of accounting for his business and he did not make any payments that require he prepare Form 1099.

On December 27, 2017, Tim shipped 100 Tim Tebow carvings. The sales price for these carvings was $18,000 but the customer had not yet paid for them [hint: consider constructive receipt].

In March 2018, Tim sold 250 Tim Tebow carvings to the Broncos Club for $57,500 cash [hint: consider constructive receipt].

The Broncos Club loved the carvings so much that they contracted for another 500 carvings per month for the next 30 months and paid Tim $198,750 in October 2018 (thats $13.25 per carving). Tim delivered 500 carvings in November and 500 in December. Tim indicated he would like to use the deferral method to account for the transaction [hint: consider constructive receipt and whether a cash basis taxpayer is eligible to defer gross income].

Tim carved a special series of Trumps in February of 2017 and sold this at a flea market for $9,987 cash [hint: consider constructive receipt].

In January 2018, Tim determined that he would not be able to collect on $5,000 of the $18,000 receivable mentioned in item (b) as a specific customer had declared bankruptcy. He collected the remaining $13,000 in cash [hint: consider constructive receipt on this item in conjunction with item b. Also, think about whether a cash basis taxpayer even recognizes accounts receivable!].

During 2018, Tim sold $120,000 of carvings on credit terms. He estimated that 5% of these sales would likely go uncollected but he was not sure what customers that might be still at year end. Tim received payments of $58,815 on these sales by the end of 2018 [hint: consider constructive receipt and, like the previous item, whether a cash basis taxpayer even has accounts receivable].

Tim correctly calculated his 2018 cost of goods sold as $265,000. You do not need to complete Part III of Schedule C [hint: just need to report this item on the correct line of Schedule C if it helps, recall that COGS is actually part of gross income for tax purposes!].

In 2018, Tim took a number of clients or potential clients out for business meals at a total cost of $1,850. He estimates that about 75% of the meals resulted in additional sales [hint: need to examine whether these costs are deductible].

On August 1, 2018, Tim purchased a 12 month insurance policy that covers its business property and casualty insurance through July 31 of 2019. The policy cost $3,430 [hint: consider the deduction of prepaid expenses by a cash basis taxpayer].

Tim had depreciation expense of $8,412 for 2018 [hint: just report on the right line of Schedule C ].

Tim previously carved in his garage, but he leased a larger space starting February 1, 2018 and paid $26,520 up front to rent the space for the next 24 months ($1,105 per month). This type of rent is reported on Line 20b [hint: hopefully your research on Item j. has provided the means to answer this question].

Before Tim really got into the carving business, he spent $20,000 getting ready to do business in 2016. He expensed $5,000 of those costs immediately and is amortizing the remainder using a straight line method over 180 months. List this expense on Line 27a of Schedule C. [hint: amortization].

Tim maintains an office in his home devoted exclusively to meeting with customers of the carving business. He probably sees customers 2 or 3 times a week in the home office. The office is 270 sq ft and Tims home is 2,600 sq ft. Tim uses the simplified method to calculate a home office deduction

Here is some information for his Form 1040:

Tim lives at 1200 Spurrier Court, Gainesville, FL 33332. For purposes of this exercise, you can assume Tim is single, has no dependents, no one can claim him as a dependent, and he was born after 1954. Tim had full-year health coverage in 2018 and claims the standard deduction. Tim also has $363 of interest income (no need to prepare a Schedule B). His Form W-2 from a part-time job at the University of Florida lists $13,000 in wages, $5,000 of income taxes withheld, $806.00 of Social Security taxes withheld, and $188.50 of Medicare taxes withheld.

Schedule C:

You should use the 2017 Schedule C instructions from the IRS website to find the business code for Tims business. Tim does not have an EIN (since he has no employees, he is not required to have one). Start by using items a. through n. above to prepare Schedule C. You do not need to complete any part of Page 2 of Schedule C. A number of gross income items are aggregated on Line 1 (specifically items b. to g. mayaffect this amount). Tim is a material participant in the business.

Schedule SE:

Once your schedule C is complete, you can then prepare Schedule SE. Tim is eligible for the short form version on Page 1 of SE. He is not required to complete Lines 1a OR 1b.

Form 1040:

Once the SE is done, you can now turn your attention to the Form 1040 and related schedules. The new Form 1040 has 6 new schedules; however, you will only need to complete Schedules 1, 2, and 4. I would complete Schedule 1 first, then Form 1040 Page 1 and 1040 Page 2 through Line 10. Then Schedule 2 and then Schedule 3, then back to Page 2 of the 1040 to finish

The QBI deduction (line 9 of Form 1040) is 20% of your Schedule C profits (Schedule C, Line 31). You need only complete the Form 1040 through Line 22 (Tim would likely owe a penalty, but well skip that).

Form 1040 Schedule 1:

Schedule 1 captures Schedule C information on Line 12 and Schedule SE information on Line 27.

Form 1040 Schedule 2

Schedule 2 captures the tax that you calculate [hint: since Tims total income is less than $100,000, you would need to use the tax tables but since these are NOT available for 2018, please use 2018 tax rate schedules in your Table Pack].

Form 1040 Schedule 4

Schedule 4 captures information from Schedule SE on Line 57. You need only complete the Form 1040 through Line 19 or Line 20a (whichever applies). The QBI deduction (line 9 of Form 1040) is 20% of your Schedule C profits (Schedule C, Line 31).

How to fill out a Schedule C, Schedule SE and Form 1040