Question

Problem 3-1 (Algorithmic) Schedule C (LO 3.1) Scott Butterfield is self-employed as a CPA. He uses the cash method of accounting, and his Social Security number is 644-47-7833. His principal business code is 541211. Scott's CPA practice is located at 678 Third Street, Riverside, CA 92860. Scott’s income statement for the year shows the following: Income Statement Scott Butterfield, CPA Income Statement 12/31/2017 Current Period Prior Period 1/1/2017 to 12/31/2017 1/1/2016 to 12/31/2016 REVENUES Tax Services $156,400 $72,154 Accounting Services 15,640 50,256 Other Consulting Services 34,408 7,690 TOTAL REVENUES 206,448 130,100 COST OF SERVICES Salaries 31,280 29,400 Payroll Taxes 2,387 2,275 Supplies 300 1,225 TOTAL COST OF SERVICES 33,967 32,900 GROSS PROFIT (LOSS) 172,481 97,200 OPERATING EXPENSES Advertising and Promotion 2,000 – Business Licenses and Permits 620 250 Charitable Contributions 400 250 Continuing Education 1,500 – Dues and Subscriptions 1,640 3,500 Insurance 9,384 870 Meals and Entertainment 7,038 5,400 Office Expense 3,128 – Postage and Delivery 85 – Printing and Reproduction 1,564 – Office Rent 4,692 13,800 Travel 6,256 750 Utilities 1,877 2,724 TOTAL OPERATING EXPENSES 40,184 27,544 NET INCOME (LOSS) $132,297 $69,656 Scott also mentioned the following: The expenses for dues and subscriptions were his country club membership dues for the year. The charitable contributions were made to a political action committee. Scott does not generate income from the sale of goods and therefore does not record supplies and wages as part of cost of goods sold. Scott placed a business auto in service on January 1, 2014 and drove it 4,093 miles for business, 2,456 miles for commuting, and 4,912 miles for nonbusiness purposes. His wife has a car for personal use. Complete Schedule C for Scott showing Scott's net income from self-employment. Assume Scott has evidence to support his deductions. If required, only use the minus sign to indicate a net loss. When required, round amounts to the nearest dollar. SCHEDULE C (Form 1040) Department of the Treasury Internal Revenue Service (99) Profit or Loss From Business (Sole Proprietorship) ▶ Go to www.irs.gov/ScheduleC for instructions and the latest information. ▶ Attach to Form 1040, 1040NR, or 1041; partnerships generally must file Form 1065. OMB No. 1545-0074 2017 Attachment Sequence No. 09 Name of proprietor Scott Butterfield Social security number (SSN) 644-47-7833 A Principal business or profession, including product or service (see instructions) Accounting, Accounting Services B Enter code from instructions ▶ 541211 C Business name. If no separate business name, leave blank. Scott Butterfield, CPA D Employer ID number (EIN), (see instr.) E Business address (including suite or room no.) ▶ 678 Peso Drive City, town or post office, state, and ZIP code La Mesa, CA 92041 F Accounting method: (1) ☒ Cash (2) ▢ Accrual (3) ▢ Other (specify) ▶ G Did you "materially participate" in the operation of this business during 2017? If "No," see instructions for limit on losses ☒ Yes ▢ No H If you started or acquired this business during 2017, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶ ▢ I Did you make any payments in 2017 that would require you to file Form(s) 1099? (see instructions) . . . . . . . . ▢ Yes ☒ No J If "Yes," did you or will you file required Forms 1099? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▢ Yes ▢ No

Answer 1

Note

1. Postage and Delivery, Printing and Reproduction is also part of Office Expenses

2. Taxes and Licence includes payroll taxes and business licence, Payroll taxes are allowed except FICA Self employment tax, Tax on Personal use property or your home, Gift Tax other taxes are allowed.

3. Meal and Entertainment are deductible upto 50% of Amount.

4. Car Expenses are allowed upto 53.5 cents i.e 4093 * 53.5% = 2190 for business purpose only.

5. Charitable Contribution made to political action committee are disallowed and not form part of deductible expense

6. Expenses for dues and subscription disallowed.