Part 1 - Scenario 7

Review the following scenario. Use the information provided to answer questions about the taxpayers 2020 return. Makayla Jennings (34) is filing as a single taxpayer. During the year, she earned $53,000 in wages from her job as a high-school English teacher. Makayla has always been an avid reader, and in addition to her teaching job, she had an opportunity in early 2020 to lead a book club at a nearby community center. Makayla led the book club from early January until March 19, 2020, when the center closed due to COVID-19 restrictions. The community center paid Makayla for her work, and in early 2021, she received a Form 1099-NEC reporting $510 for nonemployee compensation in box 1. The community center is within walking distance of Makaylas home, so she did not have any vehicle or travel expenses. Her only business-related expense was for $50 in supplies. Makayla had no other income during the year.

Question 13

What amount should Makayla report as profit or loss from business? You may refer to her partially completed Schedule C, Profit or Loss from Business, which is shown below, to assist you in answering this question.

Question 14

What is the amount of Makayla's self-employment tax? You may refer to her partially completed Schedule SE, Self-Employment Tax, which is shown below, to assist you in answering this question.

6 8 18 9 10 20a 11 12 21 23 a Travel 24a 15 Part 1 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 0 1 2 Returns and allowances 2 3 Subtract line 2 from line 1 3 4 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) 7 Gross Income. Add lines 5 and 6.. 7 Part 11 Expenses. Enter expenses for business use of your home only on line 30. 8 Advertising.... 18 Office expense (see instructions) 9 Car and truck expenses (see 19 Pension & profit-sharing plans. 19 instructions)... 20 Rent or lease (soe instructions): 10 Commissions and fees. a Vehicles, machineryand equipment 11 Contract labor (see instructions) b Other business property 20b 12 Depletion...... 21 Repairs and maintenance 13 Depreciation and section 179 22 Supplies (not included in Partii... 22 expense deduction (not 23 Taxes and licenses included in Part III) (see instr.).. 13 24 Travel and meals: 14 Employee benefit programs (other than on line 19). 14 b Deductible meals 15 Insurance (other than health) (see 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 27 a Other expenses (from line 48).. 17 Legal and professional services b Reserved for future use 27b 28 Total expenses before expenses for business use of home. Add lines 8 through 27a 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 fllers 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 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 31 Form 1041, line 3 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), Ine 3, and on All investment is at risk. Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions). Estates 32b Some investment is not and trusts, enter on Form 1041, line 3. at risk. If you checked 32b, you must attach Form 6198. Your loss may be limited. For Paperwork Reduction Act Notice, see the separate Instructions. Schedule C (Form 1040) 2020 FDA 20 C1 BWF 1040 Form Software Copyright 1996 - 2021 HRB Tax Group, Inc. 27a 17 28 30 32a : $0 $0 O $425 O $460 O $510 1a 2 4c o 7 Ba 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A. 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 1065), 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 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 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here ..... 4b Combine lines 4a and 4b. If less than $400, stop: you don't owe self-employment tax. Exception: If less than $400 and you had church employee Income, enter -- 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% railroad retirement (tier 1) tax for 2020 137.700 sa 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 8b through 10, and go to line 11..... 53,000 b Unreported tips subject to social security tax from Form 4137, line 10 8b c Wages subject to social security tax from Form 8919, line 10 8C d Add lines 8a, 8b, and 8c. 8d 53,000 9 Subtract line 8d from line 7. If zero or less, enter -o- here and on line 10 and go to line 11 84, 700 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124). 10 11 Multiply line 6 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.. 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 Part II Optional Methods To Figure Net Earnings (see instructions) Farm Optional Method. You may use this method only if (a) your gross farm income' wasn't more than $8,460, or (b) your net farm profits? were less than $6,107. 14 Maximum income for optional methods ..... 5,640 15 Enter the smaller of two-thirds (2/3) of gross farm income' (not less than zero) or $5,640. Also include this amount on line 4b above..... Nonfarm Optional Method. You may use this method only if (a) your net nonfarm profits were less than $5,107 and also less than 72.189% of your gross nonfarm income, and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution: You may use this method no more than five times. 16 Subtract line 15 from line 14 ...... 17 Enter the smaller of two-thirds (2/3) of gross nonfam income (not less than zero) or the amount on line 16. Also, include this amount on line 4b above "From Sch. F, line 9; and Sch. K-1 (Form 1065), box 14, codo B. 3 From Sch. C. line 31: Sch. K-1 (Form 1065), box 14. code A. 2 From Sch. F. line 34, and Sch. K-1 (Form 1065), box 14, code A-- minus the amount From Sch. C, line 7: and Sch. K-1 (Form 1065), box 14. code C. you would have entered on line 16 had you not used the optional method. For Paperwork Reduction Act Notice, see your tax return Instructions. Schedule SE (Form 1040) 2020 FDA 20 SE1 BWF 1040 Form Software Copyright 1996 - 2021 HRB Tax Group, Inc. 12 14 15 16 17 O $0 O $65 O $70 O $78