Tax Research Project: You are a Tax Senior at a local CPA firm; your task is to review a tax return that a junior staff has prepared. You have already reviewed the client papers and you believe the return has been prepared accurately based on the information provided. As a final procedure in the review process, you will analyze the return looking for errors, omissions, and areas of high audit risk. In short, you are looking for information that the taxpayer may have failed to provide, or items that appear unusual for someone in the taxpayers income range. I have seeded at least one (maybe more) error/high audit risk area(s) in this return; your goal is to identify it/them. Your analysis must include an excel file listing the taxpayers 1040 by line?item next to the appropriate average (identifying items that are unusual or might reflect an error), then summarize these items in a short email to the client (no more than one page). I have included an excel file template that I ask that you use for this analysis, which should include a comparison of the draft return with aggregate data for California residents. The IRS publishes aggregate tax return data, referred to as Statistics of Income (SOI). I have downloaded the individual income tax SOI for 2015 for the state of California from the following website: www.irs.gov/statistics/soi-tax-stats-historic-table-2 Use this dataset as a comparison to identify tax return line-items that vary significantly from the average for someone in a similar income range. It is best to scale these numbers by either AGI or Taxable Income (i.e. a person with $75,000 of income will likely have higher deductions compared to someone with $50,000 of income, even if they are in the same income range). When reviewing the clients files you have found that Neo and Trinity Smith (MFJ) have two children both under the age of 13. NEO is an IRS Agent and has worked there for many years. This is his only job. His wife Trinity is a very successful IT Hacker. She works as a self?employed IT Security analyst, and this is her only job. Neo received a W?2, and Trinity received several 1099s, which totaled to 65,000. The have a joint investment account that has generated some dividends and capital gains. They have no other investments other than their retirement accounts.

1040 OMB No. 1545-0074 , ending Your first name and initial Last name Your social security number If a joint return, spouse's first name and initial Last name Spouse's social security number Home address (number and street). If you have a P.O. box, see instructions. Apt. no. City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). 1 Single Filing Status 2 Married filing jointly (even if only one had income) Check only one box. 3 Qualifying widow(er) with dependent child 6a Yourself. If someone can claim you as a dependent, do not check box 6a Exemptions b Spouse (4) X if child qualifying for Dependents: c (2) Dependent's social security number (3) Dependent's (1) First name Last name If more than four dependents, see instructions and d Total number of exemptions claimed 7 Wages, salaries, tips, etc. Attach Form(s) W-2 7 8a Taxable interest. Attach Schedule B if required 8a Income b Tax-exempt interest. Do not include on line 8a 8b Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld. 9a Ordinary dividends. Attach Schedule B if required 9a 10 Taxable refunds, credits, or offsets of state and local income taxes 10 11 Alimony received 11 12 Business income or (loss). Attach Schedule C or C-EZ 12 13 Capital gain or (loss). Attach Schedule D if required. If not required, check here 13 14 Other gains or (losses). Attach Form 4797 14 15a IRA distributions 15a b Taxable amount 15b 16a Pensions and annuities 16a b Taxable amount 16b 17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17 18 Farm income or (loss). Attach Schedule F 18 19 Unemployment compensation 19 20a Social security benefits 20a b Taxable amount 20b 21 21 22 Combine the amounts in the far right column for lines 7 through 21. This is your total income 22 Health savings account deduction. Attach Form 8889 25 23 27 27 29 IRA deduction 28 30 30 Student loan interest deduction 31a 31a 32 32 Alimony paid b Recipient's SSN Add lines 23 through 35 36 33 Subtract line 36 from line 22. This is your adjusted gross income 34 Adjusted Gross Income 37 If you did not get a W-2, see instructions. Form Married filing separately. Enter spouse's SSN above and full name here. Form 1040 (2016) IRS Use OnlyDo not write or staple in this space. Head of household (with qualifying person). (See instructions.) If the qualifying person is a child but not your dependent, enter this child's name here. Other income. List type and amount Penalty on early withdrawal of savings 25 26 For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Boxes checked on 6a and 6b No. of children on 6c who: Dependents on 6c not entered above Add numbers on lines above lived with you did not live with you due to divorce or separation (see instructions) 35 34 Deductible part of self-employment tax. Attach Schedule SE 33 36 Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking Make sure the SSN(s) above and on line 6c are correct. SpouseYou Self-employed SEP, SIMPLE, and qualified plans 37 4 5 Educator expenses 23 b Qualified dividends 9b 2016 24 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ 24 29 Self-employed health insurance deduction 28 } . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UYA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Moving expenses. Attach Form 3903 Domestic production activities deduction. Attach Form 8903 35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Department of the TreasuryInternal Revenue Service For the year Jan. 1-Dec. 31, 2016, or other tax year beginning check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . child tax credit under age 17 (see instr.) relationship to you (99) U.S. Individual Income Tax Return Presidential Election Campaign a box below will not change your tax or refund. Foreign country nameForeign country name Foreign province/state/county Foreign postal code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . See separate instructions. . . . . . . . . . . . . . . . . . . . . . Tuition and fees. Attach Form 8917 . . . . . . . . . . . . . Neo Smith 123-45-6788 Trinity Smith 887-65-4321 123 Fake Street chicago, IL 60611 X X X 2 Cypher Smith 555-66-1234Son X Oracle Smith 777-55-1234Daughter X 2 0 0 4 110,000. 980. 6,100. 4,900. 65,000. X 7,565. 189,645. 1,398. 1,398. 188,247. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Itemized deductions (from Schedule A) or your standard deduction (see left margin) Add lines 64, 65, 66a, and 67 through 73. These are your total payments Form 1040 (2016) Page 2 38 Amount from line 37 (adjusted gross income) 38 Check if: 39a Tax and Credits 39a b 40 41 Subtract line 40 from line 38 41 42 42 43 Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- 43 44 44 49 55 48 53 52 58 Add lines 48 through 54. These are your total credits 52 Subtract line 55 from line 47. If line 55 is more than line 47, enter -0- Self-employment tax. Attach Schedule SE Other 58 Taxes 59 76a Unreported social security and Medicare tax from Form: 62 Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required 63 Add lines 56 through 62. This is your total tax Federal income tax withheld from Forms W-2 and 1099 64 66a 65 66a 2016 estimated tax payments and amount applied from 2015 return Payments 68 70 Amount paid with request for extension to file 70 68 71 74 72 b 78 77 If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid 79 78 Amount of line 75 you want refunded to you. Refund Estimated tax penalty (see instructions) 79 You were born before January 2, 1952, Blind. Spouse was born before January 2, 1952, Blind. a 2439b 62 71 Amount You Owe Sign Here Your signature Date Keep a copy for your records. Spouse's signature. If a joint return, both must sign. Date Date Check PTIN Paid self-employed Preparer Use Only Firm's name Firm's address Firm's EIN Phone no. Your occupation (see instructions). Check if any from: Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions b Direct deposit? See Routing number Account number c Checking Savings a Form(s) 8814 Form 4972 d 77 74 51 48 Child tax credit. Attach Schedule 8812, if required 59 60a 76a Residential energy credits. Attach Form 5695 51 55 53 Additional child tax credit. Attach Schedule 8812 69 69 Joint return? See instr. Daytime phone number Earned income credit (EIC) Credit for child and dependent care expenses. Attach Form 2441 45 47 49 Alternative minimum tax (see instructions). Attach Form 6251 Add lines 44, 45, and 46 Education credits from Form 8863, line 19 If you have a qualifying child, attach Schedule EIC. 45 47 Spouse's occupation Form 1040 (2016) Designee's name Third Party Do you want to allow another person to discuss this return with the IRS (see instructions)? Designee Phone no. Yes. Complete below. No Personal identification number (PIN) 57 56 54 54 64 Type: c Total boxes }{ checked . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Retirement savings contributions credit. Attach Form 8880 Foreign tax credit. Attach Form 1116 if required Nontaxable combat pay election 66b 40 . . . . . . . . . . . . . . . . . . . . . . Amount of line 75 you want applied to your 2017 estimated tax 3800 8801 73 Net premium tax credit. Attach Form 8962 72 If Form 8888 is attached, check here . a b 4137 8919 . . . . . . . . . . . . . . . . . . . 73 b . . If your spouse itemizes on a separate return or you were a dual-status alien, check here Household employment taxes from Schedule H 67 67 Excess social security and tier 1 RRTA tax withheld c . . . . . Exemptions. 50 56 57 65 American opportunity credit from Form 8863, line 8 . . . . . . . . . . . . . . . . 50 63 First-time homebuyer credit repayment. Attach Form 5405 if required Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . 75 75 Print/Type preparer's name Preparer's signature if . . . . . . . . instructions. . . . . . . . . . . . . . . . . . . . . . . c 60a b Taxes from: 60b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deduction forPeople who Standard check any box on line 39a or 39b or who can be claimed as a dependent, see instructions. All others: Single or Married filing separately, $6,300 Married filing jointly or Qualifying widow(er), $12,600 Head of household, $9,300 If the IRS sent you an Identity Protection PIN, enter it here (see inst.) . . . . . . . . . . . . . . . . . . . . . . d a Form 8959 Form 8960 Instructions; enter code(s) b c 61 Health care: individual responsibility (see instructions) Full-year coverage . . . . . . . . . . . 61 46 Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . . . . . . . . . . . 46 www.irs.gov/form1040 UYA Neo and Trinity Smith 123-45-6788 188,247. 0 30,290. 157,957. 16,200. 141,757. 25,736. 25,736. 0. 25,736. 2,795. X 28,531. 17,500. NO 17,500. 0. . . . . . . . . . . OMB No. 1545-0074 SCHEDULE A (Form 1040) Department of the Treasury Internal Revenue Service Attach to Form 1040. Attachment Sequence No. 07 Name(s) shown on Form 1040 Your social security number Caution: Don't include expenses reimbursed or paid by others. Medical and Dental Expenses 1 Medical and dental expenses (see instructions) 1 2 2 3 3 Multiply line 2 by 10% (0.10). But if either you or your spouse was 4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- 4 5 Taxes You 5 Paid 6 Real estate taxes (see instructions) 6 8 Other taxes. List type and amount 8 9 Add lines 5 through 8 9 10 Home mortgage interest and points reported to you on Form 1098 Interest You Paid 10 Home mortgage interest not reported to you on Form 1098. If paid to the person from whom you bought the home, see instructions and show that person's name, identifying no., and address 11 11 12 12 13 Investment interest. Attach Form 4952 if required. (See instructions.) 13 14 14 Add lines 10 through 14 Gifts to Charity 16 15 Gifts by cash or check. If you made any gift of $250 or more, see instructions 17 Other than by cash or check. If any gift of $250 or more, see instructions. You must attach Form 8283 if over $500 16 Carryover from prior year 18 17 18 Add lines 16 through 18. 19 20 Casualty or theft loss(es). Attach Form 4684. (See instructions.) Casualty and Theft Losses 20 21 23 Other expenses investment, safe deposit box, etc. List type and amount 24 Add lines 21 through 23 25 Enter amount from Form 1040, line 38 26 Multiply line 25 by 2% (0.02) 27 Subtract line 26 from line 24. If line 26 is more than line 24, enter -0- 27 28 Other from list in instructions. List type and amount 28 29 Total Itemized Deductions 29 For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule A (Form 1040) 2016 25 21 23 24 If you made a gift and got a benefit for it, see instructions. 26 Enter amount from Form 1040, line 38 Note. Your mortgage interest deduction may be limited (see 7 7 22 Tax preparation fees 22 Is Form 1040, line 38, over $155,650? Information about Schedule A and its separate instructions is at 2016 Itemized Deductions Unreimbursed employee expenses job travel, union dues, job education, etc. Attach Form 2106 or 2106-EZ if required. (See instructions.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UYA State and local 30 If you elect to itemize deductions even though they are less than your standard deduction, 15 19 (99) . . . . . . . . . . . . . . . . No. . . . . . . . check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . instructions). ab Income taxes, General sales taxes Personal property taxes . . . . . . . . . . . . . . . . . . . . . www.irs.gov/schedulea. Mortgage insurance premiums (see instructions) born before January 2, 1952, multiply line 2 by 7.5% (0.075) instead Your deduction is not limited. Add the amounts in the far right column for lines 4 through 28. Also, enter this amount on Form 1040, line 40. Yes. Your deduction may be limited. See the Itemized Deductions Worksheet in the instructions to figure the amount to enter. . (check only one box): or Neo and Trinity Smith 123-45-6788 0. X 8,500. 8,500. 6,790. 6,790. 15,000. 15,000. 0. 0. 0. 30,290. X Attach to Form 1040A or 1040. Part I Interest (See instructions for Form 1040A, or line 8a.) List name of payer. If any interest is from a seller-financed mortgage and the Amount buyer used the property as a personal residence, see instructions and list this interest first. Also, show that buyer's social security number and address 1 Note: If you received a Form 1099-INT, Form 1099-OID, or substitute statement from a brokerage firm, list the firm's name as the payer and enter the total interest shown on that form. 1 2 Add the amounts on line 1 2 3 Excludable interest on series EE and I U.S. savings bonds issued after 1989. Attach Form 8815 3 4 Subtract line 3 from line 2. Enter the result here and on Form 1040A, or Form 4 Part II Ordinary Dividends Amount (See instructions for Form 1040A, or line 9a.) 5 List name of payer Note: If you received a Form 1099-DIV or substitute statement from a brokerage firm, list the firm's name as the payer and enter the ordinary dividends shown on that form. 5 6 6 Add the amounts on line 5. Enter the total here and on Form 1040A, or Form For Paperwork Reduction Act Notice, see your tax return instructions. Schedule B (Form 1040A or 1040) 2016 Note: If line 4 is over $1,500, you must complete Part III. Note: If line 6 is over $1,500, you must complete Part III. You must complete this part if you (a) had over $1,500 of taxable interest or ordinary dividends; (b) had a foreign account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust. Part III Foreign Accounts and Trusts Yes No At any time during 2016, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? See instructions 7a b (See instructions.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . UYA financial account is located SCHEDULE B OMB No. 1545-0074 (Form 1040A or 1040) Department of the Treasury Internal Revenue Service Attachment Sequence No. 08 Name(s) shown on return Your social security number 2016 Interest and Ordinary Dividends (99) Form 1040, 1040, line 8a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form 1040, 1040, line 9a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . If you are required to file FinCEN Form 114, enter the name of the foreign country where the If "Yes," are you required to file FinCEN Form 114, Report of Foreign Bank and Financial 8 foreign trust? If "Yes," you may have to file Form 3520. See instructions During 2016, did you receive a distribution from, or were you the grantor of, or transferor to, a . . . . . . . . . . . . . . . Accounts (FBAR), to report that financial interest or signature authority? See FinCEN Form 114 and its instructions for filing requirements and exceptions to those requirements . . . . . . . . . . . (Rev. January 2017) Neo and Trinity Smith 123-45-6788 Local Bank 980. 980. 980. Investment Account 6,100. 6,100. X X 04/20/2018 12:40:39AM Part II SCHEDULE C-EZ (Form 1040) Department of the Treasury Internal Revenue Service (99) Net Profit From Business (Sole Proprietorship) Partnerships, joint ventures, etc., generally must file Form 1065 or 1065-B. Attach to Form 1040, 1040NR, or 1041. See instructions on page 2. OMB No. 1545-0074 2016 Attachment Sequence No.09A Name of proprietor Social security number (SSN) Part I General Information You May Use Schedule C-EZ Instead of Schedule C Only If You: Had business expenses of $5,000 or less. Use the cash method of accounting, Did not have an inventory at any time during the year, Did not have a net loss from your business, Had only one business as either a sole proprietor, qualified joint venture, or statutory employee, And You: Had no employees during the year, Are not required to file Form 4562, Depreciation and Amortization, for this business. See the instructions for Schedule C, line 13, to find out if you must file. Don't deduct expenses for business use of your home, Don't have prior year unallowed passive activity losses from this business, and A Principal business or profession, including product or service B C Business name. If no separate business name, leave blank. D E Business address (including suite or room no.). Address not required if same as on page 1 of your tax return. City, town or post office, state, and ZIP code F Did you make any payments in 2016 that would require you to file Form(s) 1099? (see the Instructions for Schedule C) Yes No G If "Yes," did you or will you file required Forms 1099? . Yes No Figure Your Net Profit 1 Gross receipts. Caution: If this income was reported to you on Form W-2 and the "Statutory employee" box on that form was checked, see Schedule C, line 1, and check here 1 2 Total expenses (see instr.). If more than $5,000, you must use Schedule C 2 3 Net profit. Subtract line 2 from line 1. If less than zero, you must Form 1040, line 12, and Schedule SE, line 2, or on Form 1040NR, line 13, and Schedule SE, line 2 do not report this amount on Schedule SE, line 2.) Form 1041, line 3 3 Part III Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 2. 4 When did you place your vehicle in service for business purposes? (month, day, year) 5 Of the total number of miles you drove your vehicle during 2016, enter the number of miles you used your vehicle for: a Business b Commuting (see page 2) c Other 6 Was your vehicle available for personal use during off-duty hours? Yes No 7 Do you (or your spouse) have another vehicle available for personal use? Yes No 8a Do you have evidence to support your deduction? Yes No b If "Yes," is the evidence written? Yes No Schedule C-EZ (Form 1040) 2016 Statutory employees Estates and trusts, enter on UYA (see instructions). (Statutory employees use Schedule C. Enter on both in the instructions for . Neo Smith 123-45-6788 Internet Security/Hacker, Internet Security/Hacker 541510 Trinities Hackers LLC 22-3456789 123 Fake Street Chicago, IL 60611 X 65,000. 65,000. 04/20/2018 12:40:39AM of: two-thirds (2/3) of gross nonfarm income (not less than zero) your net farm profits were less than $5,457. of: two-thirds (2/3) of gross farm income (not less than zero) your gross farm income was not more 1 4 3 2 1 Schedule SE (Form 1040) 2016 Attachment Sequence No. 17 Page 2 Name of person with self-employment income (as shown on Form 1040 or Form 1040NR) Social security number of person with self-employment income A If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had $400 or more of other net earnings from self-employment, check here and continue with Part I Note. If your only income subject to self-employment tax is church employee income, see instructions. Also see instructions Self-Employment Tax 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), box 14, code A. Note. Skip lines 1a and 1b if you use the farm optional method (see inst.) 1a 2 2 3 3 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 4a 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 4b. If less than $400, stop; you do not owe self-employment tax. Exception. If less than $400 and you had church employee income, enter -0- and continue 4c 6 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 2016 5a 7 W-2) and railroad retirement (tier 1) compensation. If $118,500 or more, skip lines 8b 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 8919, line 10) 8c 8a 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 9 10 10 Self-employment tax. Form 1040, line 57, Optional Methods To Figure Net Earnings (see instructions) 14 Maximum income for optional methods 14 Enter the smaller or $5,040. Also include this amount on line 4b above 15 15 16 Subtract line 15 from line 14 16 Nonfarm Optional Method. 17 17 3 From Sch. C, line 31; Sch. C-EZ, line 3; Sch. K-1 (Form 1065), box 14, code A; and Sch. K-1 (Form 1065-B), box 9, code J1. 1 4 From Sch. C, line 7; Sch. C-EZ, line 1; Sch. K-1 (Form 1065), box 14, code C; and Sch. K-1 (Form 1065-B), box 9, code J2. 2 From Sch. F, line 34, and Sch. K-1 (Form 1065), box 14, code A minus the amount you would have entered on line 1b had you not Multiply the smaller of line 6 or line 9 by 12.4% (0.124) Multiply line 6 by 2.9% (0.029) Enter your church employee income from Form W-2. See instructions for definition of church employee income Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- Add lines 4c and 5b 5a b 5b 6 7 11 12 11 Farm Optional Method. You may use this method only if (a) than $7,560, Enter the smaller 4 or Part I Part II Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter the result here and on Form 1040, line 27, 13 13 Schedule SE (Form 1040) 2016