Problem 1 – David R. and Sheri N. Johnson – Individuals (Form 1040)

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SWFT 2014: Comprehensive Volume/Solutions to Appendix E

© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

David R. and Sheri N. Johnson—Individual Income Tax Return

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SWFT 2014: Comprehensive Volume/Solutions to Appendix E

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3. The $9,000 contribution to H.R.10 Keogh retirement plan and the $3,800 of premiums on health insurance are not reported on Schedule C but are listed on Form 1040, Page 1, Lines 28 and 29 respectively. The remaining expense are deducted on Schedule C as follows:
 Line 8 - Advertising
$ 2,400
 Line 18 - Office supplies
1,200
 Line 22 – Supplies
3,200
 Line 23 - State occupation license
300
 Line 27a (and also listed separately on page 2, Part V)
Business phone and Internet service
860
Subscriptions to trade journals
240
Membership dues to trade associations
180
1,280
4. The home office deduction is computed on Form 8829 (Expenses for Business Use of Your Home).
For depreciation purposes, the basis of the residence is the lesser of $450,000 (fair market value) or
David’s inherited basis of $360,000 under §1014. The land is not depreciable. Consequently, this amount is entered on Line 38 of Form 8829 and multiplied by the business percentage of 20% (Line
7) to yield $72,000 (Line 39). Referring to Table 8.6 (MACRS Straight-Line Depreciation for Real
Property Assuming Mid-Month Convention) on page 8-38 of the text, the applicable percentage for
39-year nonresidential real property for the recovery period of 2-39 years is 2.564. Thus, the depreciation for 2012 is $1,846 [$72,000  2.564%] and is entered on Line 41 and Line 29. Other data in completing Form 8829 are summarized below:
Indirect expenses (reported in