Assessment 2: Self-Employed Business Income-Schedule C

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Analyze official rules and instructions to complete a Schedule C and related required tax forms, to reflect income and deductions related to self-employment as a sole proprietor.

Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in a sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 2 until you have submitted and received faculty feedback for Assessment 1.

Introduction

“The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”— Ronald Reagan.

If an individual is searching for a tax strategy to offset his or her income from a primary job, being self-employed on the side is quite possibly one of the best options, along with being a real estate property owner or an investor. Each of these has the advantage of allowing an individual to reduce current income by any losses suffered from freelancing, renting out a property, or investing.

However, the individual takes on additional work for the filing process. Schedule C must be completed, a task that requires an individual to know much more about the tax rules for recognizing income and maximizing expenses than many persons are willing to invest the time to research.

The use of Schedule C is required when the individual’s business is not incorporated or formed as a partnership or limited liability company.

Note: The assessments in this course are presented in a sequence and must be completed in order. In Assessments 2-5, you will work step-by-step toward completing a 1040 tax return and all the necessary related forms, based on a provided scenario. Do not complete Assessment 2 until you have submitted and received faculty feedback for Assessment 1.

Preparation

Calculating correct entries for self-employment requires significant research. For those are who self-employed, entries from self-employment tax forms are necessary to complete the 1040 form.

For this assessment, use information and publications from IRS.gov and the other IRS resources linked below to research the regulations and complete the appropriate self-employment schedules, based on the provided scenario:

Scenario

Jacob Weaver is a contractor operating as a sole proprietorship (EIN 12-3456789). 2021 Gross income: $278,322.25.

  • Business expenses:
    • Fuel for equipment $64,080.00
    • Repairs and maintenance $17,342.00
    • Lubricants for Equipment $9,670.00
    • Insurance $6,500.00
    • Wages $6,300.00
    • Vehicles $1,768.00
    • Legal and Professional Expenses $1,750.00
    • Taxes and Licenses $1,412.00
    • Advertising $300.00
  • Clients owe him a total of $53,000, for work completed in 2021.
  • 2021 estimated tax payments were $25,000.
  • He is using a bedroom in his house as a home office. (Square footage of home 5,600 Office 240 sq. ft.)

Instructions

Complete the following:

  • Read the information provided in the scenario above.
  • Download the appropriate forms and publications from IRS.gov to complete this assessment.
  • Complete the entries on tax forms required for a sole proprietorship return.
  • Analyze official rules and instructions to correctly compute SE tax and SE deduction.
    • 1040sc.
    • 1040sse.
  • Determine eligible business deductions.
  • Interpret official rules and instructions to record correct entries on tax forms.
  • Submit the tax forms

Competencies Measured

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

  • Competency 1: Analyze the background of the federal income tax system.
    • Analyze official information to identify tax forms required for a sole proprietorship.
  • Competency 2: Analyze the basics of individual income tax return preparation.
    • Analyze official rules and instructions to determine eligible business tax credits.
    • Analyze official rules and instructions to determine eligible deductions.
    • Analyze official rules and instructions to correctly compute SE tax and SE deduction.
    • Interpret official rules and instructions to record correct entries on all tax forms.