INDIVIDUAL TAX RETURN WITH SOLE PROPRIETORSHIP

Note that this example is for tax year 2016 because the 2017 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, 2014; it had an adjusted basis of $3,000 when sold on August 15, 2016. The Market also sold a display case for $1,000 on December 12, 2016, that had cost $12,000 when purchased on June 6, 2012; 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-2016 purchases) 3,000

Section 179 expense (2/1/16 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, 2016 for $4,000. They had purchased the stock on August 1, 2009 for $18,000. During 2016, the Spicers paid $300 with their 2015 North Carolina state income tax return and made $4,600 in estimated payments for 2016. This amount exceeds their alternate state sales tax deduction. June is a volunteer at the childrens school two days a week teaching 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 2016 is to be applied to their 2017 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