Tax Return 3 Business Income In July of 2014 Stephen, a single taxpayer with no dependents, started a proprietorship called ECR (which stands for electric car repair). ECR uses the cash method of accounting and Stephen has produced the following financial information for this year. ECR collected $81,000 in cash for repairs completed during the year and an additional $3,200 in cash for repairs that will commence after year end. Customers owe ECR $14,300 for repairs completed this year, and while Stephen isnt sure which bills will eventually be paid, he expects to collect all but about $1,900 of these revenues next year. ECR has made the following expenditures: Interest expense $ 1,250 Shop rent ($1,500 per month) 27,000 Utilities 1,075 Contract labor 8,250 Compensation 21,100 Liability insurance premiums ($350 per month) 4,200 Term life insurance premiums ($150 per month) 1,800 The interest paid relates to interest accrued on a $54,000 loan made to Stephen in July of this year. Stephen used half of the loan to pay for 18 months of shop rent and the remainder he used to upgrade his personal wardrobe. In July Stephen purchased 12 months of liability insurance to protect against liability should anyone be injured in the shop. ECR has only one employee (the remaining workers are contract labor), and this employee thoroughly understands how to repair an electric propulsion system. On November 1 of this year Stephen purchased a 12month termlife policy that insures the life of this key employee. Stephen paid Gecko Insurance Company $1,800, and in return Gecko promises to pay Stephen a $40,000 death benefit if this employee dies any time during the next 12 months. Stephen had income from no sources other than ECR in 2014. Complete only Form 1040, lines 1 61; Schedule C, lines 1 31; and Schedule SE, lines 1 6. Caution: This assignment isnt completed by just filling in the information provided on the appropriate lines of the different forms. You must first determine which information to include and which to exclude and then determine whether the full amount should be used or only a partial amount. Remember, Steve is a cash method taxpayer Hints: The rent must be capitalized and amortized over the life of the rental agreement using the straight line method. In general, life insurance premiums paid are not deductible. Although this may sound unfair, remember that life insurance proceeds are not taxed.