2021 Form 1040 INDIVIDUAL TAX RETURN WITH SOLE PROPRIETORSHIP NOTE: THIS IS FOR TAX YEAR 2021. Facts William Spicer (123

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2021 Form 1040 INDIVIDUAL TAX RETURN WITH SOLE
PROPRIETORSHIP
NOTE: THIS IS FOR TAX YEAR 2021.
Facts
William Spicer (123-45-5789) and June Spicer (937-65-4321) have
two dependent children, Sophie (236-52-6587) age 9 and Carl
(236-52-6588) age 7, both of whom live at home. William operates a
gourmet market in Raleigh, NC, Bill’s Market, as an accrual-basis
sole proprietorship.
The information on gross sales, expenses, and property
transactions is shown below. William receives no salary and
therefore, there is no related FICA tax for him. The Market sold a
unique piece of equipment for $13,000. It had originally cost
$5,000 when purchased on March 5, 2017. It had an adjusted basis of
$3,000 when sold on August 15, 2021.
The Market also sold a display case for $1,000 on December 12,
2021, that had cost $12,000 when purchased on June 6, 2015 which
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 $18,000 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 payments and $8,000 in ordinary
business income. June paid $3,800 for after-school and summer child
care while she worked.
2021 financial results for Bill’s Market is as follows:
Gross sales ($1,300,000 from credit card sales) 3,700,000
Merchandise purchases 2,480,000
Expenses:
Advertising 40,000
Charitable contributions 20,000
Cleaning/maintenance 12,000
Depreciation (MACRS pre-2021 purchases) 3,000
Section 179 expense (2/1/21 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 10,000
Office expenses 14,000
Rent 120,000
Salary/wages 210,000
Travel 8,000
Utilities 32,000
*Includes $3,000 for health insurance for William and his
family.
The following information pertains to the completion of the
Spicers’ personal tax return:
Interest income $ 500
Dividend income (all qualified) 1,300
Unreimbursed doctor’s bills 8,200
Unreimbursed hospital bills 9,000
Unreimbursed dental bills 2,000
Mortgage interest 14,000
Real estate taxes 7,800
Contributions to their church 1,500
Investment advisor fees $3,659
The Spicers sold 10,000 shares of ABC stock on February 2, 2021
for $4,000. They had purchased the stock on August 1, 2012 for
$18,000. During 2021, the Spicers paid the balance due of $300 with
their 2020 North Carolina state income tax return and made $4,600
in estimated payments for 2021 to NC. This amount exceeds their
alternate state sales tax deduction.
June is a volunteer at the children’s school two days a week
tutoring at-risk students. Her total mileage for her trips to and
from the school was 1,200 miles. She also had unreimbursed
out-of-pocket expenses for teaching materials for these students of
$232. Additionally, the Spicers contribute $3,000 each to regular
IRAs.
The Spicers made 2021 Federal quarterly estimated tax payments
of $17,500 each quarter. All payments were made when due. Any
refund that the Spicers have for 2021 is to be applied to their
2022 estimated taxes.
2021 Form 1040 and Related Forms and Schedules
Form 1040: U.S. Individual Income Tax Return & Schedules
1-3
Schedule A: Itemized Deductions
Schedule C: Profit or Loss from Business (Sole
Proprietorship)
Schedule D: Capital Gains and Losses
Schedule E: Supplemental Income and Loss
Schedule SE: Self-Employment Tax (2)
Form 2441: Child and Dependent Care Expenses
Form 4562: Depreciation and Amortization
Form 4797: Sales of Business Property
Form 8582: Passive Activity Loss Limitations
Form 8949: Sales and Other Disposition of Capital Assets
The Spicers will prepare only one joint tax return, their Form
1040, along with all the required schedules and forms including the
Schedule C where the income and expenses for Bill’s Market are
reported.
A Form 4797 is completed for the business property dispositions;
the sale of the stock is entered on the Form 8949; the net gain on
the equipment disposition and the gain or loss on the stock are
both included on the Spicer’s Schedule D.
The depreciation recapture, if any, is also entered on Form 4797
and is transferred directly to the Spicers’ Form 1040.
Two other items are not included on the Schedule C—the health
insurance for William and his family (which is deducted on page 1
of the Form 1040 as a deduction for AGI) and the charitable
contribution (which is included with the Spicers’ personal
charitable deductions on their Schedule A).
June is allowed to deduct 14 cents per mile for the 1,200 miles
driven ($168) for her volunteer work along with her out-of-pocket
charitable expenses of $232.
Their other itemized deductions are $14,000 for mortgage
interest, $7,800 for R/E taxes and $680 for Personal Property
taxes.
Their dividend income is taxed at the Capital Gain rate, while
the rest of their income is taxed at the regular rates.
*ANSWERS MUST BE WRITTEN ON THE NECESSARY
FORMS
2021 Form 1040 and Related Forms and
Schedules
Form 1040: U.S. Individual Income Tax
Return
Form 1040 - Schedules 1:Additional Income and
Adjustments to Income
Form 1040 - Schedules 2: Additional Taxes
Form 1040 - Schedules 3: Additional Credits and
Payments
Form 1040 - Schedule A: Itemized Deductions
Form 1040 - Schedule C: Profit or Loss from Business
(Sole Proprietorship)
Form 1040 - Schedule D: Capital Gains and
Losses
Form 1040 - Schedule E: Supplemental Income and
Loss
Form 1040 - Schedule SE: Self-Employment Tax
(2)
Form 2441: Child and Dependent Care
Expenses
Form 4562: Depreciation and Amortization
Form 4797: Sales of Business Property
Form 8582: Passive Activity Loss
Limitations
Form 8949: Sales and Other Disposition of Capital
Assets