Brian and Maureen Sullivan are married and live in Chicago, Illinois. They have two children, Luke a 5 - year old boy and Claire, a 2 - year old girl. Their address is 456 Park Avenue, Chicago, IL 52083. They own their home.
The Social security numbers of the family are:
Brian: 190-50-4462
Maureen: 183-93-5466
Luke: 290-40-6733
Claire: 290-41-8900
In 2012, they paid $12000 in mortgage interest. Their real estate taxes amounted to $6,500.
During 2012, the couple sent both children to Sunnyside Daycare. The daycare is located at 222 Sunnyside Way, Chicago, IL 52804. The employer identification number (EIN) for the daycare is 91-8765432. The total cost for the children's daycare was $10,000 for the year (at $5,000 each).
Maureen is employed by a prestigious law firm in downtown Chicago. Her 2012 wages were $85,000. She had $15,000 withheld on her form W-2.
Brian is self-employed. His business is called Irish Football Clothes and sells merchandise for Notre Dame Football games.
The business address is 123 Irish Way, South Bend, In 68722.
Brian uses the cash basis of accounting, and the business, which he runs alone, is his only source of income. The cost method is used to value inventory. Following is the additional information regarding Brian's business:
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Gross receipts
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$195,000
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Returns from dissatisfied customers
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$2,000
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Beginning inventory for 2012
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$45,000
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Inventory at the end of 2012
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$10,000
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Purchases for 2012
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$90,000
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Business insurance
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$1,000
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Cost of an accountant
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$2,000
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Taxes
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$2,250
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Wages for a single employee
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$35,000
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Maureen and Brian love the Fighting Irish, and in 2012 they made a $2,500 cash contribution to the University.
During 2012, Luke was very sick with viral meningitis and to be hospitalized for a few days. Luckily, he was okay. The family had to pay medical expense of $4,600 for that hospital visit.
Brian and Maureen are conservative when it comes to investing. Brian and Maureen have a savings account at Bank of the USA. In 2012, they received $130 in interest income, from their savings account.
Additionally, Brian and Maureen received $50 in dividends from their investment in ABC Corporation and $150 in dividends from their investment in the Candle Company of Chicago. They sold part of an investment in the candle company of Chicago during 2012. They had purchased 100 shares of stock in the company on February 1, 2011 for $5 per share and sold 50 shares on January 31, 2012 for $7 per share. Brian and Maureen also sold 100 shares of stock in the coffee company of Chicago. They had purchased the stock on June 1, 2009 for $10 per share and sold it on June 1, 2012 for $12 per share. They used the proceeds to purchase 10 shares of Starbucks stock. Finally, they sold their stock in the Running Company of Chicago. They had purchased the stock (25 shares) on August 21, 2008 for $15 per share and sold it on November 21, 2012 for $16 per share.
The couple paid $350 to have their 2011 income tax return prepared by a certified public accountant.
They filed their return as married filing jointly.
Complete the following:
Schedule C (Form 1040), Profit or Loss from Business
Schedule SE (Form 1040), Self-Employment Tax
Note: You can use TaxCut or any other tax preparation software program. Alternatively, you can use the actual Schedules C and SE Form to fill in the requisite details.
Once you have completed filling in the Schedules, create a 2- to 3-page Microsoft Word document that includes the answers to the following questions:
What are the tax concepts involved in completing the Schedules C and SE? Explain in detail.
What are the tax planning considerations you took into account while completing the Schedules?
What are the various steps and the calculations for each step you made while completing the Schedules?