William and June Spicer have two dependent children, Sophie age 9 and Carl age 7, both of
Question:
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William and June Spicer have two dependent children, Sophie age 9 and Carl age 7, both of whom live at home. William operates a gourmet market in Raleigh, Bill's Market, as an accrual-basis sole proprietorship. The information on market sales, expenses, and property transactions is as provided below: William receives no salary and there is no related FICA tax. The Market sold a unique piece of equipment for $13,000. It had originally cost $5,000 when purchased on March 5, 2013; 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. Bill's Market 2016 results: 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
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