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Topic 18  Self-Employment Income and Tax

Student instructions:

You may need acrobat reader to download forms and publications online.

Use IRS Publication 334, Schedule F instructions and California 540A / 540 Booklet to complete this topic.

Please complete a return for Olive Brown.

Prepare  Form 1040, Schedule C , Schedule SE, Form 4562, California Form 540, and California Schedule CA

Olive is a 27 year old unmarried taxpayer.

She owns and manages Fashions At Discount (Activity codes). A Clothing store that she started in 2007.

Address for business is 4858 Ocean Ave, Lompoc, CA 93457.

She had the following for her store:

Income Statement

Year Ended December 31, 2007

bullet Gross receipts............................................$400,000
bullet Minus: Returns and allowances...........................14,940
bullet Net receipts...............................................$385,060
bullet Minus: Cost of goods sold................................288,140
bullet Gross profit................................................$96,920
bullet                                                                             ========

Cost of Goods Sold

bullet Inventory at beginning of year.........................$37,845
bullet Plus: Purchases...........................$285,900
bullet Minus: Items withdrawn personal  ........2,650......283,250
bullet Goods available for sale...............................$321,095
bullet Minus: Inventory at end of year........................32,955
bullet Cost of goods sold......................................$288,140
bullet                                                                            ========

Expenses:

bulletBank service charges........................................150.00
bulletInsurance.....................................................270.00
bulletInterest paid for business loan..........................2,500.00
bulletProfessional services.......................................400.00
bulletRent........................................................12,000.00
bulletRepairs and Maintenance...................................860.00
bulletSupplies......................................................1,200.00
bulletAdvertising................................................4,000.00
bulletTaxes and licenses.........................................5,000.00
bulletUtilities (including telephone)...........................3,500.00
bulletWages......................................................59,050.00
bulletChamber of Commerce......................................120.00
bulletWindow washing..............................................190.00
bulletDepreciation for Store equipment (cash register, etc)..$834.00 (enter on line 17 of Form 4562)

Inventory is valued at cost and there was no change in determining inventory at any time during the year.

In addition, Olive had the following:

bullet Interest income from First Bank..............$490.00
bullet Health insurance paid for herself............$2,400.00 (Plan established under the business and she does not have any insurance at her work).

Olive paid rent all year in 2007. Use W2 for basic information. Address and other information on W2 is current.

 Have your return prepared and ready to answer the questions. Choose one of the following two options:

Option 1: Complete Quiz online.

Instructions to submit quiz successfully: Step-by-Step check list

When prompted for your name, please enter your CTEC or Preparer Number (if you have a number) with your name as follows:  First, last name, Number (e.g. John Smith A012345 / John Smith P012345)

Print questions

Start quiz

Option 2: Complete and mail answer sheet.

If you choose not to complete the quiz by pressing "Start quiz" above, you can print questions and answer-sheet to mail to us. If you complete the online quiz, the advantage is that you get an automatic score as apposed to waiting for a response on a manually graded quiz. You can also print the questions and answer sheet and after you answered the questions on paper submit it online by choosing "Start Quiz" above.  Please don't sent answer sheet by certified mail.

Print questions        Print Answer sheet

Please Note: You must also complete the tax return for this assignment. If you turn in incomplete work, such as purposely not answering the questions regarding the return you prepared, you will not be given credit for the topic.

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Revised: 02/16/15

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