Stanley Price owns and operates Stan's Barber Shop. He has been in
business for 32 years. Stanley uses the cash method of accounting and
files his return on a calendar year basis.
Schedule C-EZ
Stanley uses Schedule C-EZ to report the net profit from his
business because he meets all of the requirements listed in Part I of
the schedule. Stanley enters his name and social security number at
the top of the schedule.
Part I-General Information
Stanley fills out Part I as follows:
Line A.
He enters his principal business.
Line B.
He enters 812111, which is the 6-digit business code for a barber
shop. He found the code on page C-8 of the instructions for
Schedule C. Stanley locates the major business category that describes
his business. He reads down the items under "Other Services" to
find 812111--"Barber shops."
Line C.
He enters the name of his business--"Stan's Barber Shop."
Line D.
Stanley leaves this line blank. He does not have an employer
identification number (EIN) because he is not required to have one.
For information about EINs, see Identification Numbers in
chapter 1.
Line E.
He enters his business address.
Part II-Figure Your Net Profit
Stanley fills out Part II as follows:
Line 1-Gross receipts.
Stanley enters his gross receipts from cutting hair. They include
the amounts he charged for haircuts and all the tips received from his
customers. The total for the year was $27,000.
Line 2-Total expenses.
Stanley enters his expenses for the year. They total $2,330 and
consist of the following:
- Advertising in the local newspaper--$145
- Supplies--$475
- Business licenses--$150
- Utilities (electricity and water)--$360
- Rent--$1,200
Line 3-Net profit.
Stanley subtracts his total expenses ($2,330) from his gross
receipts ($27,000) to get his net profit of $24,670. He enters his net
profit here, on line 12 of Form 1040, and on line 2, Section A of
Schedule SE (Form 1040).
Part III-Information on Your Vehicle
Stanley leaves this part blank because he is not deducting car or
truck expenses.
Schedule SE--Self-Employment Tax
After Stanley prepares Schedule C-EZ, he fills out Schedule
SE. He starts by entering his name and social security number at the
top of the schedule. Then he reads the chart on page 1 of the schedule
which tells him he can use Section A--Short Schedule SE
to figure his self-employment tax. He fills out the following
lines in Section A.
Lines 2 and 3.
He enters $24,670. This is his net profit from line 3 of Schedule
C-EZ.
Line 4.
He multiplies $24,670 by .9235 to get his net earnings from
self-employment ($22,783). This is his net profit subject to
self-employment tax.
Line 5.
Because the amount on line 4 is less than $76,200, Stanley
multiplies the amount on line 4 ($22,783) by .153 to get his
self-employment tax of $3,486. He enters that amount here and on line
52 of Form 1040.
Line 6.
He multiplies the amount on line 5 by .5 to get his deduction for
one-half of self-employment tax of $1,743. He enters that amount here
and on line 27 of Form 1040.
Form 1040
Stanley fills out Form 1040 as follows:
Name, address, and social security number.
Stanley enters his name, home address, and social security number.
Presidential election campaign fund.
Stanley chooses to have $3 go to this fund. He checks the box under
"Yes."
Line 1.
Stanley checks the box on this line because he is filing as single.
Lines 6a and 6d.
Stanley claims an exemption for himself. He checks the box next to
"Yourself" and enters "1" in the far right-hand entry space.
He also enters "1" in the box on line 6d.
Line 8a.
Stanley enters $295 of taxable interest credited to his personal
savings account for the year.
Line 9.
Stanley enters $145 of dividends he received from ABC Corporation.
Line 12.
He enters his business net profit of $24,670 from line 3 of
Schedule C-EZ.
Line 22.
Stanley adds the amounts on lines 7 through 21 and enters the
total, $25,110.
Line 23.
Stanley enters the $2,000 contribution he made for the year to his
individual retirement arrangement (IRA). According to the Form 1040
instructions, he can deduct this amount.
Line 27.
Stanley enters one-half of his self-employment tax. He got this
amount from line 6 in Section A of Schedule SE.
Line 32.
Stanley adds the amounts on lines 23 through 31a and enters the
total, $3,743.
Line 33.
Stanley subtracts the amount on line 32 from the amount on line 22
to arrive at his adjusted gross income, $21,367. He also enters this
amount on line 34.
Line 36.
He enters $4,400. This is the standard deduction for a single
filer.
Line 37.
Stanley subtracts line 36 from line 34 to get $16,967.
Line 38.
He multiplies $2,800 by the number of exemptions claimed on line 6d
to get his total exemptions, $2,800.
Line 39.
Stanley subtracts line 38 from line 37 to get his taxable income,
$14,167.
Line 40.
Stanley uses the Tax Table in the Form 1040 instructions to figure
his income tax. In the Tax Table he looks for the income bracket that
includes $14,167. He finds the bracket for incomes of at least
$14,150, but less than $14,200 and sees that the tax for a person
filing as single is $2,126. He enters this amount here.
Lines 41 and 42.
Because he does not owe alternative minimum tax, he enters -0- on
line 41 and $2,126 on line 42.
Lines 50 and 51.
Because Stanley does not have any of the credits listed on lines 43
through 49, he enters -0- on line 50 and $2,126 on line 51.
Line 52.
He enters $3,486 from line 5 in Section A of Schedule SE.
Line 57.
Stanley adds the amounts on lines 51 through 56 and enters the
total, $5,612.
Line 59.
He enters $6,000 of estimated tax payments he made for the year.
Line 65.
He enters $6,000.
Lines 66 and 67a.
Stanley subtracts line 57 from line 65 to arrive at the amount he
overpaid, $388. He wants this amount refunded to him and also enters
it on line 67a. The IRS will send him a check for this amount provided
he owes no other taxes. If Stanley wanted the refund deposited
directly into his checking or savings account, he would have had to
complete lines 67b, c, and d.
Signing and assembling the return.
He signs his name and enters the date signed, his occupation, and a
daytime telephone number. He assembles his original Form 1040,
Schedules C-EZ and SE in that order. (See "Attachment Sequence
Number" in the upper right corner of each schedule or form.) Then
he makes a copy of the return for his records. Finally, he mails it to
the IRS.
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