INDIVIDUAL TAX RETURN WITH SOLE PROPRIETORSHIP

Note that this example is for tax year 2015 because the 2016 tax forms have not yet been

released by the IRS.

Facts

William and June Spicer have two dependent children, Sophie age 9 and Carl age 7, both of

whom live at home. (Additional personal data are provided directly on Form 1040.) William

operates a gourmet market in Raleigh, Bills Market, as an accrual-basis sole proprietorship.

The information on gross market sales, expenses, and property transactions is the same as

provided for the regular corporate tax return (Sample Tax Return 1) except that William

receives no salary and there is no related FICA tax. This information is as follows:

The Market sold a unique piece of equipment for $13,000. It had originally cost $5,000

when purchased on March 5, 2013; it had an adjusted basis of $3,000 when sold on August

15, 2015. The Market also sold a display case for $1,000 on December 12, 2015, that had cost

$12,000 when purchased on June 6, 2011; it 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 $1,800 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 payment and $8,000 in ordinary business income. June paid $3,800 for

after-school and summer child care while she worked.

Gross sales ($1,300,000 from credit card sales) $2,700,000

Merchandise purchases 1,980,000

Expenses:

Advertising $40,000

Charitable contributions 2,000

Cleaning/maintenance 12,000

Depreciation (MACRS pre-2015 purchases) 3,000

Section 179 expense (2/1/15 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 1,000

Office expenses 14,000

Rent 120,000

Salary/wages 210,000

Travel 8,000

Utilities 16,000

*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 8,000

Unreimbursed hospital bills 9,000

Dental bills 2,000

Mortgage interest 14,000

Real estate taxes 3,000

Contributions to their church 1,500

The Spicers sold 10,000 shares of ABC stock on February 2, 2015 for $4,000. They had

purchased the stock on August 1, 2008 for $18,000. During 2015, the Spicers paid $300 with

their 2014 North Carolina state income tax return and made $4,600 in estimated payments for

2015. 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 of $232. Additionally, the Spicers contribute $3,000 each to regular IRAs.

The Spicers made quarterly estimated tax payments of $17,500 each quarter. All payments

were made when due. Any refund that the Spicers have for 2015 is to be applied to their 2016

estimated taxes.

Form 1040 and Related Forms and Schedules

Form 1040: U.S. Individual Income Tax Return

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 tax return, their Form 1040, along with all the required

schedules and forms including the Schedule C where the income and expenses for the

business 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 loss on the stock are both included on the Spicers Schedule D. The $2,000 depreciation

recapture is also entered on Form 4797 but 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 expenses of $232.

Their total itemized deductions are $23,800 and their exemptions are $16,000 (4

$4,000). They are not able to benefit from the child tax credit as their AGI exceeds the

allowable limit for claiming all or part of this credit, but they are allowed a $760 credit for

Junes child care expenses. Their dividend income is taxed at 15 percent while the rest of the

income is taxed at the regular rates.

Fill out the correct from from

Form 1040 and Related Forms and Schedules

Form 1040:U.S. Individual Income Tax Return

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

please fill out the correct form:)