In May of 2017 Jeff Matson (SS# 123456789), a single taxpayer with no dependents, residing at 3618 Hillwood Drive, Richmond, IN 47374, started a sole proprietorship called Master Car Repair (Employer ID# 987654321) at 560 Beyond Street, Richmond, IN 47374.
Master Car Repair uses the cash method of accounting. Its Principal Business Code is 811110.
Jeff has produced the following financial information regarding Master Car Repair for the year. Master Car Repair collected $97,000 in cash for repairs completed during the year and an additional $5,000 in cash for repairs that will commence after year end.
Customers owe Master Car Repair $12,500 for repairs completed this year, and while Jeff isn’t sure which bills will eventually be paid, he expects to collect all but about $2,000 of these revenues next year.
Master Car Repair made the following expenditures in 2017: Interest expense $ 2,250 Shop rent ($1,500 per month) 27,000 Utilities 1,075 Contract labor (for parttime mechanic) 8,250 Wages (to fulltime mechanic) 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 Jeff in May of this year. Jeff used half of the loan to pay for 18 months of shop rent and the remainder he used to upgrade his personal wardrobe.
In May Jeff purchased 12 months of liability insurance to protect against liability should anyone be injured in the shop. Master Car Repair has only one employee (the remaining worker is a contract labor), and this employee thoroughly understands how to repair an electric propulsion system. On November 1 of this year Jeff purchased a 12month termlife policy that insures the life of this “key” employee. Jeff paid Gecko Insurance Company $1,800, and in return Gecko promises to pay Jeff a $40,000 death benefit if this employee dies any time during the next 12 months. Besides income from Master Car Repair in 2017, Jeff received $1,250 of qualified dividend income during the year.
Jeff made estimated Federal tax payments of $15,000 during 2017. If he overpaid his tax liability for the year, Jeff would like any overpayment refunded to him.
Complete only Form 1040; Schedule C, lines AJ and lines 1 – 31; and Schedule SE, lines 1 – 6. Do not forget to put the taxpayer information at the top of the two Schedules. Caution: This assignment isn’t 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 Page 2 of 3 exclude and then determine whether the full amount should be used or only a partial amount. Remember, Jeff 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. Many students had trouble handling qualified dividends on the first tax return assignment. Learn from your mistakes and correctly handle the qualified dividends this time. Special Instructions: Because the 2017 Form 1040 has not yet been published, we will be using the 2016 Form 1040 to complete this assignment. However, you must use the 2017 information (deductions, exemptions, tax rates, etc.) when completing this assignment. Round all dollar amounts up or down to the nearest dollar. Do not enter zeros on unused lines. Leave them blank. Do not worry about any other lines on the forms other than those you were told to complete. For your convivence the 2017 Tax Rate Schedule for Single Taxpayers is: You must submit this assignment on the official IRS 2016 Form 1040 (submit the 2 pages of the form), 2017 Schedule C (submit page 1 only), and 2017 Schedule SE (submit page 1 only). Submit in the order listed as a combined pdf file with file name of: Tax Return 2_YOUR LAST NAME Note: Some of you had trouble combining the return into one pdf file in the previous tax return assignment. It is important that you learn how to do this as it will be a skill you’ll use in your career. Therefore, I will not accept any submission that is not combined into one, fourpage pdf file. Page 3 of 3 You can access the IRS website to download the necessary forms at IRS.gov, or you can use the link to the IRS Publications page located on the lefthand navigation menu of our Canvas course site. The IRS is beginning to publish the 2017 tax forms. Make sure you use the forms for the years listed above even if the 2017 Form 1040 has been published when you go to download the necessary forms!