James Jones is the owner of a small retail business operated as a sole proprietorship. During 2020, his business recorded the following items of income and expense:
| Revenue from inventory sales | $ 147,000 |
| Cost of goods sold | 33,500 |
| Business license tax | 2,400 |
| Rent on retail space | 42,000 |
| Supplies | 15,000 |
| Wages paid to employees | 22,000 |
| Payroll taxes | 1,700 |
| Utilities | 3,600 |
Required:
- Compute taxable income attributable to the sole proprietorship by completing Schedule C to be included in Jamess 2020 Form 1040.
- Compute self-employment tax payable on the earnings of Jamess sole proprietorship by completing a 2020 Schedule SE, Form 1040.
- Assume that James's business is not a service business and that it has a $155,000 unadjusted basis in tangible depreciable property. Calculate James's 2020 QBI deduction, before any overall taxable income limitation.
Compute taxable income attributable to the sole proprietorship by completing Schedule C to be included in James's 2020 Form 1040. (Input all the values as positive numbers.) OMB No. 1545-0074 2020 SCHEDULE C Profit or Loss From Business (Form 1040) (Sole Proprietorship) Department of the Treasury - Internal Revenue Go to www.irs.gov/Schedule for instructions and the latest Information. Service (0) Attach to Form 1040, 1040-SR, 1040-NR. or 1041; partnerships generally must file Form 1065 Name of proprietor James Jones Principal business or profession, including product or service see instructions Attachment Sequence No. 09 Social security number (SSN) ) B Enter code from instructions Business name. If no separate business name, leave blank D Employer ID number (EIN) (see instr.) Business address (including suite or room no.) Yes No City, town or post office, state, and ZIP code = Accounting method: (1) Cash (2) Accrual (3) Other (specify) 3 Did you "materially participate in the operation of this business during 2019? If "No." see instructions for limit on losses If you started or acquired this business during 2019. check here Did you make any payments in 2010 that would require you to file Form(s) 1009? (see instructions) If "Yes," did you or will you file required Forms 1099? Parti Income 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 Yes Yes No No 1 2 Returns and allowances 2 3 Subtract line 2 from line 1 3 0 # Cost of goods sold (from line 42) 4 5 Gross profit. Subtract line 4 from line 3 5 0 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) 8 - Gross income. Add lines 5 and 6 7 0 Part II Expenses Enter expenses for business use of your home only on line 30. B Advertising 81 18 Office expense see instructions) 18 Car and truck expenses (see 19 Pension and profit-sharing plans 10 instructions) 20 Rent or lease see instructions): O 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 and meals: 4 Employee benefit programs a Travel 24a (other than on line 19) 141 b Deductible meals (see 15 Insurance (other than health) 15 instructions) 24b 16 Interest (see instructions): 25 Utilities 25 e Mortgage paid to banks, etc.) 10a 20 Wages (less employment credits) 28 Other 27a Other expenses (from line 48) 27a 17 Legal and professional services 17 | b Reserved for future use 270 28 Total expenses before expenses for business use of home. Add lines 8 through 27a 28 0 29 Tentative profit or loss). Subtract line 28 from line 7 29 0 20 Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 3820 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 (or Form 1040-NR. 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 31 0 Ifa loss, you must go to line 32 22 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 (or Form 1040-NR, line 13) and 32a All investment is at risk. on Schedule SE, line 2. (If you checked the box on line 1. see the line 31 instructions) 32b Some investment is not at risk. Estates and trusts, enter on Form 1041, line 3 . If you checked 32b. you must attach Form 198. Your loss may be limited. For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11334P Schedule C (Form 1040 or 1040-SR) 2020 THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2021 McGraw-Hill Education. 16b Compute self-employment tax payable on the earnings of James's sole proprietorship by completing a 2020 Schedule SE, Form 1040. (Round your intermediate computations and final answers to the nearest whole dollar value. Input all the values as positive numbers.) SCHEDULE SE OMB No. 1545-0074 Self-Employment Tax (Form 1040) 2020 Department of the Treasury Go to www.irs.gov/Schedule SE for instructions and the latest information. Internal Revenue Service (99) Attach to Form 1040, 1040-SR, or 1040-NR. Attachment Sequence No. 17 Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR) Social security number of person James Jones with self-employment income Partl Self-Employment Tax Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee ncome A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4381, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F. line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14. code A 1a b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F. line 4b, or listed on Schedule K-1 (Form 1085), box 20. code AH 1b Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or loss) from Schedule C, line 31: and Schedule K-1 (Form 1065), box 14. code A (other than farming). See instructions for other income to report or if you are a minister or member of a religious order 2 3 Combine lines 1a, 1b, and 2 3 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 4a Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 16. see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here 4b c Combine lines 4a and 46. If less than $400, stop; you don't owe self-employment tax. Exception: If less than $400 and you had church employee income, enter-O- and continue 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income 5a b Multiply line 5a by 92.35% (0.9235). If less than $100. enter-O- 5b 6 Add lines 4c and 5b 6 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or the 6.2% portion of the 7.65% 7 137,700 ailroad retirement (tier 1) tax for 2020 Ba Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $137,700 or more, skip lines Sb through 10, and go to line 11 8a b Unreported tips subject to social security tax from Form 4137, line 10 8b c Wages subject to social security tax from Form 8910, line 10 8C d Add lines 8a, 8b, and 8c 8d 0 Subtract line 8d from line 7. If zero or less, enter-O- here and on line 10 and go to line 11 9 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) 10 11 Multiply line 8 by 2.9% (0.029) 11 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 12 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 14 13 For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No. 11358Z Schedule SE (Form 1040) 2020 THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. 2021 McGraw-Hill Education. | | | 4C 0 Assume that James's business is not a service business, and that it has $155,000 unadjusted basis in tangible depreciable property. Calculate James's 2020 QBI deduction, before any overall taxable income limitation. (Round your intermediate computations and final answers to the nearest whole dollar value.) James's 2020 QBI deduction
