In July of this year Stephen started a sole proprietorship called ECR (which stands for Electric Car Repair). ECR uses the cash method of accounting and Stephen has produced the following financial information for this year:
- ECR collected $81,000 in cash for repairs completed during the year and an additional $3,200 in cash for repairs that will commence after year end.
- Customers owe ECR $14,300 for repairs completed this year, and while Stephen isnt sure which bills will eventually be paid, he expects to collect all but about $1,900 of these revenues next year.
ECR has made the following expenditures: Interest expense $ 1,250 Shop rent ($1,500 per month) 27,000 Utilities 1,075 Contract labor 8,250 Compensation 21,100 Liability insurance premiums ($350 per month) 4,200 Term life insurance premiums ($150 per month) 1,800
The interest paid relates to interest accrued on a $54,000 loan made to Stephen in July of this year. Stephen used half of the loan to pay for 18 months of shop rent and the remainder he used to upgrade his personal wardrobe. In July Stephen purchased 12 months of liability insurance to protect against liability should anyone be injured in the shop. ECR has only one employee (the remaining workers are contract labor), and this employee thoroughly understands how to repair an electric propulsion system. On November 1 of this year Stephen purchased a 12-month term-life policy that insures the life of this key employee. Stephen paid Gecko Insurance Company $1,800, and in return Gecko promises to pay Stephen a $40,000 death benefit if this employee dies any time during the next 12 months.
Fill out a draft of the front page of Stephens Schedule C.
Page 2 Schedule Form 1040) 2021 Part III Cost of Goods Sold (see instructions) SCHEDULEC Profit or Loss From Business OMB No. 1545-0074 (Form 1040) Sole Proprietorship) 2021 Go to www.irs.gov/Schedule for instructions and the latest information. Department of the Treasury Arachment Internal Revenue Service (99Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065. Sequence No. 09 Name of proprietor Social security number (SSN) Methods used to value closing inventory b Lower of cost or market cOther (attach explanation) Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If "Yes," attach explanation Yes a Cost 34 Principal business or profession, including product or service (see instructions) B Enter code from instructions No Business name. If no separate business name, leave blank. 35 D Employer ID number (EIN) se inst D .) 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 Yes 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? (monthday/year) ......... 9 44 Of the total number of miles you drove your vehicle during 2021, enter the number of miles you used your vehicle for a Business ............................. b Commuting (see instructions) a c Other 45 Was your vehicle available for personal use during off-duty hours? Yes No E Business address (including suite or room no.) City, town or post office, state, and ZIP code F Accounting method: (1) Cash (2) Accrual (3) Other (specify G Did you "materially participate in the operation of this business during 2021? If "No," see instructions for limit on losses Yes No H If you started or acquired this business during 2021, check here 1 Did you make any payments in 2021 that would require you to file Forms) 1099? See instructions No J If "Yes," did you or will you file required Forms 1099? Yes No Part Income 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 "Statutory employee" box on that form was checked 1 2 Returns and allowances 2 3 Subtract line 2 from line 1... 3 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 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 a , 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 in Part II (see 23 Taxes and licenses. ... 23 instructions) 13 24 Travel and meals: 14 Employee benefit programs a Travel 24a (other than on line 19) 14 b Deductible meals (see 15 Insurance (other than health) 15 instructions) 24b 16 Interest (see instructions: 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 Legsl 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 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. 31 If a loss, you must go to line 32 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 32a All investment is at risk. . Form 1041, line 3. 32b Some investment is not If you checked 32b, you must attach Form 6198. Your loss may be limited. at risk For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11334P Schedule C Form 1040) 2021 46 Do you for your spouse) have another vehicle available for personal use? Yes No Yes No 47a Do you have evidence to support your deduction? bf " ? "Yes," is the evidence written? ......... Other Expenses. List below business expenses not included on lines 8-26 or line 30 Yes No Part V 48 Total other expenses. Enter here and on line 27a 48 Schedule C (Form 104012021
