Question

Barbara Gonzales, age 53, is a self-employed tax attorney (social security number 444-88-9999). She is supporting her mother, Martha Garza, age 85 who lives with her. Martha’s social security number is 666-99-4444. Barbara lives in a rental at 4597 Campbell Ave. Campbell, CA 95008

Barbara’s office is located at 6578 Hamilton Ave. Ste. 456, San Jose, CA 95130. Her business name is her name- Barbara Gonzales, Attorney. She materially participates in her business. She has the following income and expenses pertaining to her business.

Barbara’s gross receipts for 2019 $189,300

Expenses:

Insurance $5800

Office Supplies $4897

Payroll $49,455

Depreciation $1489 ( on her office furniture and computer and printers- you do not have to prepare a depreciation form)

Telephone and internet $5699

Rent $ 18000

Advertising $ 1264

Software fees for tax preparation $8,451

Education needed to keep up on latest tax laws $2575

The business uses the cash basis of accounting.

Other income includes Interest from Wells Fargo, $249.

You do not have to calculate self-employment taxes as this will be covered in another chapter. Barbara sent estimated tax payments to the IRS for the 2019 taxes totaling $15000.

Prepare Barbara’s Form 1040 tax return for 2019. Schedules 1, 2 and 3 may be required. It is up to you to determine which ones, if any are necessary. You should also prepare a Schedule C.

Answer 1

Barbara Gonzales, a self-employed tax attorney, would report a net income of $100,670 from her business on a Schedule C attached to her Form 1040 tax return.

Step-by-step explanation:

Preparing Barbara Gonzales' Form 1040 Tax Return

To compute the net profit from Barbara Gonzales' self-employed tax attorney business for inclusion on her Form 1040 tax return, we need to calculate her net income from her Schedule C:

• Total Income: $189,300
• Total Expenses: ($5800 + $4897 + $49455 + $1489 + $5699 + $18000 + $1264 + $8451 + $2575) = $88,630
• Net Income (Profit): $189,300 - $88,630 = $100,670

This net income of $100,670 will be reported on Barbara's Form 1040 as income from self-employment. Additional income from interest would be $249. The estimated tax payments of $15,000 will be accounted for, and any applicable schedules, such as Schedule 1 for additional income, Schedule C for profit or loss from business, or others will be used as required.

In addition to income taxes, self-employed individuals pay a self-employment tax, which covers the Social Security and Medicare taxes. Normally, these are split between employers and employees. However, because Barbara is self-employed, she pays both portions, amounting to 12.4% for Social Security (up to the income cap) and 2.9% for Medicare on her net earnings.

The self-employment tax is a form of payroll tax that must be calculated and included on Schedule SE, which is not required in this problem. Actual federal and state income tax rates may vary based on Barbara's total income, filing status, and available deductions and credits, so a comprehensive tax calculation is not provided here.