Assessment: Self-Employment Business Income-Schedule

Overview

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 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.

Context

"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 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.

Questions to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

• What are the financial advantages of self-employment?
• Can a person have multiple Schedule Cs?
• What are the financial implications of hiring employees versus independent contractors?

Required Resources

The following resources are required to complete the assessment.

Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.

IRS gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to tax questions. Download the appropriate forms and publications from the IRS Web site to complete this assessment.

• IRS.gov. (n.d.).
• IRS. (n.d.). Interactive tax assistant.
• IRS. (n.d.). Tax trails.

Assessment Instructions

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 in the Resources under the Required Resources heading to research the regulations and complete the appropriate self-employment schedules, based on the provided scenario.

Complete the following:

• Read the information provided in the scenario below.
• 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 whether Jacob's business is eligible for any tax credits.

- Is Jacob's business eligible to use the Work Opportunity Credit and Disabled Access Credit?

• Determine eligible business deductions.

• Interpret official rules and instructions to record correct entries on all related self-employed schedules.

• Submit the tax forms.

Scenario

Jacob Weaver is a contractor operating as a sole proprietorship (EIN 99-3456789).

• 2014 net income: $133,000.
• Clients owe him a total of $53,000 for work completed in 2014.
• 2014 estimated tax payments: $18,000.
• He is using a bedroom in his house as a home office. The room is 15' x14'.
• He has one half-time employee, Martin, who had been unemployed since returning from Afghanistan and is disabled.

- Martin worked for Jacob for 20 hours a week, for 41 weeks of 2014.
- Martin earned $10,500.
- Jacob had to spend $7,350 for disabled access equipment for Martin.