William and June Spicer have two dependent children, Sophie age 9 and Carl age 7,…

William and June Spicer have two dependent children, Sophie age 9 and Carl age 7, both of
whom live at home. (Additional personal data are provided directly on Form 1040.) William
operates a gourmet market in Raleigh, Bill’s Market, as an accrual-basis sole proprietorship.
The information on gross market sales, expenses, and property transactions is the same as
provided for the regular corporate tax return (Sample Tax Return 1) except that William
receives no salary and there is no related FICA tax. This information is as follows:
The Market sold a unique piece of equipment for $13,000. It had originally cost $5,000
when purchased on March 5, 2014; it had an adjusted basis of $3,000 when sold on August
15, 2016. The Market also sold a display case for $1,000 on December 12, 2016, that had cost
$12,000 when purchased on June 6, 2012; it had an adjusted basis of $4,000 when sold. The
gains or losses on these asset sales are the same for tax and financial accounting. The
business complies with all Form 1099 requirements.
William is also a 10 percent shareholder in Imagineers Corporation, an S corporation, but
takes no active role in the business. He received a Schedule K-1 from this S corporation
reporting $1,800 in ordinary business income. June is a general partner in The Bridal Shop
Partnership. She worked 3 days a week at the shop and received a Schedule K-1 reporting a
$12,000 guaranteed payment and $8,000 in ordinary business income. June paid $3,800 for
after-school and summer child care while she worked.
Gross sales ($1,300,000 from credit card sales) $2,700,000
Merchandise purchases 1,980,000
Expenses:
Advertising $40,000
Charitable contributions 2,000
Cleaning/maintenance 12,000
Depreciation (MACRS pre-2016 purchases) 3,000
Section 179 expense (2/1/16 display case) 5,000
Payroll taxes 18,000
Health insurance 15,000*
Insurance (excludes health) 18,000
Interest expense 1,000
Licenses/fees 4,000
Meals/entertainment 1,000
Office expenses 14,000
Rent 120,000
Salary/wages 210,000

 

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