During 2017, Cassandra Albright, who is single, worked part-time at a doctorâs office and received a W-2. She also had a cash-basis consulting practice that had the following income and expenses:
Revenue $ 48,000
Laptop computer purchased 4/23/17 (§ 179 elected) 2,300
Travel 2,500 miles for business, 13,000 personal
Supplies 500
Cell phone charge 540
Cassandra (SSN 412-34-5670) resides at 1400 Medical Street, Apt. 3A, Lowland, CA 92273. Professional code 622000. Her W-2 shows the following:
Wages $ 45,300
Federal withholding 4,983
Social security wages 45,300
Social security withholding 2,809
Medicare withholding 657
State withholding 2,265
Other income:
1099-INT Old Bank 2,300
1099-DIV Bake Co., Inc.—Ordinary dividends 3,100
Qualified dividends 3,100
Cassandra had the following itemized deductions:
State income tax withholding $ 2,265
State income tax paid with the 2016 return 350
Real estate tax 3,450
Mortgage interest 12,300
Cassandra made two federal estimated payments of $7,000 each on April 15 and June 15. She had qualifying health care coverage at all times during the tax year.
Prepare Form 1040 for Cassandra for 2017, including Schedule A, Schedule B, Schedule C, Schedule SE and Form 4562. Use the appropriate Tax Tables.
(Input all the values as positive numbers. Use Rounded values for tax computation. Do not round other intermediate computations. Round your final answers to nearest whole dollar and percentage values to two decimal places.)
Required tax return forms for 2017
The Correct Answer and Explanation is :
To prepare Cassandra Albright’s 2017 tax return, we must complete various forms, including Form 1040, Schedule A, Schedule B, Schedule C, Schedule SE, and Form 4562. Let’s break down the steps and calculations necessary for each form:
Step 1: Form 1040 (U.S. Individual Income Tax Return)
Form 1040 is the main form used for individual tax returns. Here are the key items:
- Income:
- Wages (W-2): $45,300
- Other Income:
- Interest (1099-INT): $2,300
- Dividends (1099-DIV): $3,100 (including $3,100 in qualified dividends)
- Self-Employment Income (Schedule C):
- Consulting Revenue: $48,000
- Self-Employment Expenses:
- Laptop purchase: $2,300 (Section 179 deduction)
- Travel (business): 2,500 miles (business portion: 2,500/15,500 = 16.13% of total miles) x $2,500 = $403.25
- Supplies: $500
- Cell phone charge: (50% of total) $540 x 50% = $270
- Net Income from Self-Employment:
- Gross income = $48,000
- Expenses: $2,300 (laptop) + $403.25 (travel) + $500 (supplies) + $270 (cell phone) = $3,473.25
- Net Self-Employment Income = $48,000 – $3,473.25 = $44,526.75
- Adjusted Gross Income (AGI):
- Total Income = Wages + Other Income + Net Self-Employment Income
- $45,300 + $2,300 + $3,100 + $44,526.75 = $95,226.75 (Total Income)
Step 2: Schedule A (Itemized Deductions)
Cassandra’s itemized deductions include:
- State Income Taxes: $2,265
- Real Estate Tax: $3,450
- Mortgage Interest: $12,300
- State Income Tax Paid from 2016: $350
- Total Itemized Deductions: $2,265 + $3,450 + $12,300 + $350 = $18,365
Step 3: Schedule B (Interest and Ordinary Dividends)
- Interest Income: $2,300
- Ordinary Dividends: $3,100 (qualified)
Step 4: Schedule C (Profit or Loss from Business)
This form is used to report Cassandra’s consulting business income and expenses:
- Revenue: $48,000
- Expenses: As calculated previously, $3,473.25
- Net Profit (or Loss): $44,526.75
Step 5: Schedule SE (Self-Employment Tax)
Self-employment tax is calculated based on the net self-employment income ($44,526.75). The rate is 15.3%, but half of this amount is deductible on Form 1040.
Step 6: Form 4562 (Depreciation and Amortization)
- Laptop Depreciation: The laptop cost ($2,300) is eligible for a Section 179 deduction, meaning the full amount can be deducted.
Step 7: Calculate Taxable Income
- AGI: $95,226.75
- Itemized Deductions: $18,365
- Taxable Income: $95,226.75 – $18,365 = $76,861.75
Step 8: Compute Taxes
Using the tax tables for 2017, compute the tax owed based on taxable income. Cassandra will also apply her federal estimated payments.
Final Step: Calculate Tax Due or Refund
After calculating her total tax liability, Cassandra’s federal withholding, state withholding, and estimated payments are subtracted to determine whether she owes taxes or is due for a refund.
This process ensures that Cassandra properly reports her income, deductions, and tax obligations. The forms and the calculations are provided for submission to the IRS.