Susan paid $3,500 for ads.

She used her van 75% for business during the year. She spent a total of $3,000 for gas and oil. She can deduct 75% of $3,000 or $2,250 for gas and oil. Other van expenses include $713 (75% of $950) for insurance, $812 (75% of $1,083) for repairs and upkeep, and $75 (75% of $100) for tags. She enters the total, $3,850, on line 9. See Car and Truck Expenses in chapter 8.

Susan enters the $4,277 depreciation from Form 4562, discussed later.

Susan's $238 deduction is for insurance on her business property (van insurance is included in line 9). The deduction is only for premiums that give her coverage for the year. See Insurance in chapter 8.

Susan had borrowed money to use in her business. The interest on these loans was $2,633 for the year. See Interest in chapter 8.

The $216 Susan paid for postage during the year is her only office expense.

Her rent for the store was $1,000 a month, or $12,000 for the year. See Rent Expense in chapter 8.

She had her store counters refinished and other painting done at a total cost of $964.

She spent $1,203 on supplies.

Susan renewed her business license and paid property tax on her store fixtures. She also paid the employer's share of social security and Medicare taxes for her employees and paid state and federal unemployment taxes. She enters the total of all these taxes, $5,727, on this line. See Taxes in chapter 8.

Susan's total expense for heat, light, and telephone for the year is $3,570.

Susan paid her employees a total of $59,050 for the year. She does not include in wages any amounts she paid to herself or withdrew from the business for her own use. See Employees' Pay in chapter 8.

Susan enters the total of her other business expenses on this line. These expenses are not included on lines 8–26. She lists the type and amount of the expenses separately in Part V of page 2, and carries the total entered on line 48 to line 27. See chapter 8 for expenses you can or cannot deduct.

Susan adds all her deductions listed in Part II and enters the total on this line.

She subtracts her total deductions (line 28) from her gross income (line 7). Susan has a tentative profit of $63,424.

Susan did not use any part of her home for business, so she does not make an entry here. For information about business use of the home, see Business Use of Your Home in chapter 8.

Susan has a net profit of $63,424 ( line 29 minus line 30). She enters her net profit here, on line 12 of Form 1040, and on line 2, Section A, of Schedule SE (Form 1040).

Susan does not have a loss, so she skips this line. If she had a loss and she was not “at risk” for all her investment in the business, the amount of loss she could enter on line 12 of Form 1040 might be limited. For an explanation of an investment “at risk,” see the Schedule C instructions for line 32.

On May 19, Susan bought a $200 adding machine and placed it in service on that same day. She chooses to deduct its cost as a section 179 deduction. She enters $200 on line 2 and $100,000 on line 5. In line 6, she writes in “adding machine” in column a, $200 in column b, and $200 in column c. She writes in $200 on lines 8 and 9. She must make a computation for line 11. Since she has no other business income, she can add the $200 taken as a section 179 deduction to the net profit shown in line 31 of Schedule C ($63,424) to arrive at total business income of $63,624. Since this amount is less than the amount shown on line 5, she enters $63,624 on line 11. See Depreciation in chapter 8.

Susan elects to not take either of the special depreciation allowances. She attaches a statement stating she is electing not to take the special depreciation allowances for any of the 5-year property purchased in 2003 (van, adding machine, and clothing racks). She leaves this line blank.

Susan enters $1,117 for depreciation on assets she purchased before 1987. For items bought after 1980 and before 1987, she uses the regular Accelerated Cost Recovery System (ACRS) percentages. For items bought before 1981, she uses the straight-line method. See Publication 534, Depreciating Property Placed in Service Before 1987, for information about ACRS.

On May 19, Susan also bought and placed in service some used clothing racks. They cost $800. She uses the Modified Accelerated Cost Recovery System (MACRS) to figure depreciation. The racks are 5-year property. Susan figures depreciation using the half-year convention and the 200% declining balance method. She uses Table A-1 in Publication 946 to determine the percentage she is allowed to take for the first year (20%). She multiplies $800 times .20 to arrive at $160. She enters this amount in column (g) of line 19(b). See Publication 946 for information about MACRS.

Susan enters the depreciation on listed property from line 28 (explained next).

On March 20, Susan bought a used van that she placed in service in her business. The van weighs over 6,000 pounds; therefore, it is not a passenger automobile for the special deduction limits. The van is 5-year property. She figures depreciation using the 200% declining balance method and applying the half-year convention under MACRS. The van cost $18,667. Her basis for depreciation is 75% of $18,667, or $14,000, because only 75% of the total miles she drove during the year were business miles. Susan does not choose to deduct any part of the cost of the van as a section 179 deduction. She uses Table A-1 in Publication 946 to determine the percentage she is allowed to take for the first year (20%). She multiplies $14,000 times .20 to arrive at $2,800. She enters this amount in column (h) of line 26. Since she has no other listed property, she enters $2,800 on line 28.

Because Susan is a sole proprietor, she must complete lines 30 through 36.

Susan has a total depreciation deduction of $4,277. She enters her deduction here and on line 13 of Schedule C.

She enters $63,424. This is her net profit from line 31 of Schedule C.

She multiplies $63,424 by 92.35% (.9235) to get her net earnings from self-employment ($58,572). This is her net profit subject to self-employment tax.

Because the amount on line 4 is less than $87,000, Susan multiplies the amount on line 4 ($58,572) by 15.3% (.153) to get her self-employment tax of $8,962. She enters that amount here and on line 55 of Form 1040.

She multiplies the amount on line 5 by 50% (.5) to get her deduction for one-half of self-employment tax of $4,481. She enters that amount here and on line 28 of Form 1040.

Susan enters her name, home address, and social security number.

Susan chooses to have $3 go to this fund. She checks the box under “Yes.”

Susan checks the box on this line because she is filing as single.

Susan claims an exemption for herself. She checks the box next to “Yourself” and enters “1” in the far right-hand entry space. She also enters “1” in the box on line 6d.

Susan enters $788 of taxable interest credited to her personal savings account for the year.

She enters her business net profit of $63,424 from line 31 of Schedule C.

Susan adds the amounts on lines 7 through 21 and enters the total, $64,212.

Susan enters one-half of her self-employment tax. She got this amount from line 6 in Section A of Schedule SE.

Susan enters $2,400 as her deduction for her health insurance. This is 100% of her health insurance premiums for the year. He health insurance plan was established under her business.

Susan enters her simplified employee pension (SEP) deduction of $2,264. She figures her deduction by using Publication 560.

Susan adds the amounts on lines 23 through 32a and enters the total, $9,145.

Susan subtracts the amount on line 33 from the amount on line 22 to arrive at her adjusted gross income, $55,067. She also enters this amount on line 35.

She enters $4,750. This is the standard deduction for a single filer.

Susan subtracts line 37 from line 35 to get $50,317.

She multiplies $3,050 by the number of exemptions claimed on line 6d to get her total exemptions, $3,050.

Susan subtracts line 39 from line 38 to get her taxable income, $47,267.

Susan uses the Tax Table in the Form 1040 instructions to figure her income tax. In the Tax Table she looks for the income bracket that includes $47,267. She finds the bracket for incomes of at least $47,250 but less than $47,300 and sees that the tax for a person filing as single is $8,629. She enters this amount here.

Because she does not owe alternative minimum tax, she skips line 42 and enters $8,629 on line 43.

Because Susan does not have any of the credits listed on lines 44 through 52, she enters -0- on line 53 and $8,629 on line 54.

She enters $8,962 from line 5 in Section A of Schedule SE.

Susan adds the amounts on lines 54 through 59 and enters the total, $17,591.

She enters $17,000 of estimated tax payments she made for the year.

She enters $17,000.

Susan subtracts line 68 from line 60 to get the amount of tax she owes, $591. She writes a check payable to the United States Treasury for $591. On the check she writes her social security number, her daytime telephone number, and “2003 Form 1040.” Her name and address are printed on the check. She sends her payment with Form 1040–V, Payment Voucher (not illustrated). She fills out that form and sends it to the IRS with her check and tax return.

She signs her name and enters the date signed, her occupation, and a daytime telephone number. Since she does not want to designate a third party to discuss her return with the IRS, she checks the “No” block in the Third Party Designee area just above the signature area. She assembles her original Form 1040, Schedules C and SE, and Form 4562 in that order. (See “Attachment Sequence No.” in the upper right corner of each schedule or form.) Then she makes a copy of the return for her records. Finally, she mails it to the IRS.

He enters his principal business.

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.”

He enters the name of his business—“Stan's Barber Shop.”

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.

He enters his business address.

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.

Stanley enters his expenses for the year. They total $2,500 and consist of the following:

Stanley subtracts his total expenses ($2,500) from his gross receipts ($27,000) to get his net profit of $24,500. He enters his net profit here, on line 12 of Form 1040, and on line 2, Section A, of Schedule SE (Form 1040).

He enters $24,500. This is his net profit from line 3 of Schedule C–EZ.

He multiplies $24,500 by 92.35% (.9235) to get his net earnings from self-employment ($22,626). This is his net profit subject to self-employment tax.

Because the amount on line 4 is less than $87,000, Stanley multiplies the amount on line 4 ($22,626) by 15.3% (.153) to get his self-employment tax of $3,462. He enters that amount here and on line 55 of Form 1040.

He multiplies the amount on line 5 by 50% (.5) to get his deduction for one-half of self-employment tax of $1,731. He enters that amount here and on line 28 of Form 1040.

Stanley enters his name, home address, and social security number.

Stanley chooses to have $3 go to this fund. He checks the box under “Yes.”

Stanley checks the box on this line because he is filing as single.

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.

Stanley enters $440 of taxable interest credited to his personal savings account for the year.

He enters his business net profit of $24,500 from line 3 of Schedule C–EZ.

Stanley adds the amounts on lines 7 through 21 and enters the total, $24,940.

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.

Stanley enters one-half of his self-employment tax ($1,731.). He got this amount from line 6 in Section A of Schedule SE.

Stanley adds the amounts on lines 23 through 32a and enters the total, $3,731.

Stanley subtracts the amount on line 33 from the amount on line 22 to arrive at his adjusted gross income, $21,209. He also enters this amount on line 35.

He enters $4,750. This is the standard deduction for a single filer.

Stanley subtracts line 37 from line 35 to get $16,459.

He multiplies $3,050 by the number of exemptions claimed on line 6d to get his total exemptions, $3,050.

Stanley subtracts line 39 from line 38 to get his taxable income, $13,409.

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 $13,409. He finds the bracket for incomes of at least $13,400, but less than $13,450 and sees that the tax for a person filing as single is $1,664. He enters this amount here.

Because he does not owe alternative minimum tax, he leaves line 42 blank and enters $1,664 on line 43.

Because Stanley does not have any of the credits listed on lines 44 through 52, he enters -0- on line 53 and $1,664 on line 54.

He enters $3,462 from line 5 in Section A of Schedule SE.

Stanley adds the amounts on lines 54 through 59 and enters the total, $5,126.

He enters $6,000 of estimated tax payments he made for the year.

He enters $6,000.

Stanley subtracts line 60 from line 68 to arrive at the amount he overpaid, $874. He wants this amount refunded to him so he enters it on line 70a. The IRS will send him a check for this amount provided he owes no other taxes, child support, spousal support, or certain other federal nontax debt. If Stanley wanted the refund deposited directly into his checking or savings account, he would have had to complete lines 70b, c, and d.

He checks the “No” block under Third Party Designee since he does not want to designate anyone, signs his name and enters the date signed, his occupation, and a daytime telephone number. He assembles his original Form 1040 and Schedules C–EZ and SE in that order. (See “Attachment Sequence No.” 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.