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Taxation Questions

Mr. Ray is a married business consultant. His wife Jackie earned $3,000 during 2011 by working at a local non-profit association. Ray earned $28,000 through his business consulting services and will report this activity in Schedule C on his Form 1040 for 2011.

Explain how Ray will report the following items on his Form 1040 assuming he selected filing status: married, filing jointly. Explain the logic of each of your answers.

1) Maximum allowable IRA contribution assuming that he is not able to make the actual investment contribution until February 23, 2012.
2) On what line will the Schedule C net result be reported on the Form 1040?
3) Where will the impact of self-employment taxes be reported (two locations)?
4) Assume Ray's net earnings were $28,000 on his Schedule C activities. Calculate the amount he will owe for self-employment taxes as reported on Schedule SE. Label your calculations.
5) Write a paragraph with bullet points providing guidance to Ray about what he can deduct for home office expenses related to his Schedule C activities.

Solution Preview

1) Ray will report an IRA contribution on line 32 of his 1040 up to the maximum allowable amount. In 2011, the maximum allowable amount was $5,000, assuming that Ray is under 50. If Ray is over 50 years old, he can contribute up to $6,000 to his IRA and take the full amount as an IRA deduction on line 32.

2) The net income from Schedule C is reported on line 12 of the 1040. The Schedule C showing the income and expenses, with all attached schedules and information, then become part of Ray's 1040. Additional schedules include depreciation schedules or business use of a home schedules with applicable information. The profit/loss from Schedule C then becomes part of Ray's total income, which is calculated on line 22 of his 1040.

3) Self employment taxes ...

Solution Summary

This solution explains how Ray will report the following items on his Form 1040 assuming he is filing married filing jointly.