Tax Calculation Homework: Stella's Self-Employment Income and Taxes

This assignment provides a comprehensive solution to a tax calculation problem. The assignment focuses on calculating Stella's gross income, deductible expenses, and net profit from her pet-sitting business, which is a sole proprietorship. It involves determining the correct income to report based on the cash method of accounting, calculating car and truck expenses using the standard mileage rate, and identifying deductible meal expenses. The solution also includes the calculation of Stella's adjusted gross income, taxable income, and total tax owed. Furthermore, the assignment extends to calculating taxable wages for fringe benefits, stock options, and capital gains, along with completing relevant sections of a W-2 form. The solution provides detailed step-by-step calculations for each question, ensuring clarity and accuracy in determining Stella's overall tax liability.

Answer question 1-8
1:
Statement showing Calculation of Gross Income reported on Schedule C Line 1 for
the year 2018:
Description Amount
Cash received in January 2018 for services performed in December
2017
$2,000
Cash received in 2018 for services performed in 2018 $24,750
Cash received in January 2019 for services performed in December
2018
To be included in Income for
year 2019
Gross Income $26,750
*Since Stella maintains accounts on Cash Basis, the income received in cash in year
2018 will form part of business income
2:
Schedule C Line 9 = 4000 x 0.545 = $ 2,180

3:
Description Amount
Accountant's fees paid in January 2018 for Quickbooks services
performed in December 2017
$50
Accountant's fees paid in 2018 for Quickbooks services performed
in 2018
$660
Accountant's fees paid in January 2019 for Quickbooks services
performed in December 2018
To be included in Income for
year 2019
Total Legal and Professional Service Expense $ 710
4: Nil
5:
Description Amount Deductible
Business-related meals with current clients $900 $ 450
Business-related meals with prospective clients $540 $ 270
Meals with current clients who are also close friends with
Stella (no business was discussed during the meals)
$375
Deduction Not Available
Tickets to a local dog competition to entertain current
clients (business was discussed during the show)
$1,600
Deduction Not Available
(Source :
https://www.irs.gov/pub/irs-
drop/n-18-76.pdf)
Total Deduction $ 720
6:

Statement showing Net Profit to be reported:
Description Amount
Gross Income $ 26750
Expenses:
Pet-grooming supplies, leashes and squeaky toys (Stella does not
personally own any pets)
600
Car and Truck Expense 2180
Legal and Professional Service Expense 710
Meals and Entertainment 720
Total Deductions $ 4210
Net Profit $ 22540
7: Adjusted Gross Income = $ 22540
Description Amount
Adjusted Gross Income $ 22,540
Less: Standard Deduction $ 12,000
Taxable Income $ 10540
Tax Rate 10%
Total tax owed $ 1054
8:

Answers for question 9-23
9 : $2675
10:
Fitness facility membership 2018 taxable wages= $816
Supplemental group term life insurance 2018 taxable wages = $900
Qualified parking 2018 taxable wages= $780
11: 950*11.75+ 1225*11.75= $25556
12:
610 shares - restricted stock
Stock basis = 610 shares * $9.50 (FMV on grant date) = $5,795
Holding period starts 1/1/2016
950 shares - restricted stock
Stock basis = 950 shares * $11.75 (FMV on vest date) = $11,163
Holding period starts 1/1/2018

13:
2016
Cash Saving in taxes if 83(b) election was not done= 610*9.5*31.65%= 1835
2017
Cash Savings in taxes if 83(b) election was not done= 0
2018
Cash loss in taxes if 83(b) election was not done= (1225*11.75*31.65%)+
(950*11.75*31.65%)- ((610+950)*11.75*31.65%)= 2287
14: 200*7*(11.75-11.30)= 630
15: 700 shares exercised 1/1/2017
Basis = 700 shares * $9.50 (exercise price) = $6,650
Holding period begins on 1/1/2017
1,400 shares exercised 1/1/2018
Basis = 1,400 shares * $11.30 (exercise price) = $15,820
Holding period begins on 1/1/2018
16: 200*7*(11.75-11.30)= 630

17: Short term capital gain for 2018
Restricted stock= (17.50-11.75)*950= 5463
Non qualified stock options= (17.50-11.30)*200*7= 8680
Total short term capital gain 2018= 5463+5890= 14143
18: Cash savings= 14143* (24-15)%= 1273
19: Long term capital gain
Restricted stock= (17.50-9.5)*610= 4880
Non qualified stock options= (17.5-9.5)*100*7= 5600
Incentive stock options= (17.5-9.5)*100*7= 5600
Total long term capital gain= 16080
20:
W-2 Box # Description 2018 Amount
1 Wages, tips, other compensation 125,271
2 Social security wages 131,352
3 Medicare wages and tips 131,352

21:
1. 2018 Form W-2 Box 12d Code DD- 2160
2. 2018 Form W-2 Box 12c Code V- 630
3. 2018 Form W-2 Box 12a Code C - 660
4. 2018 Form W-2 Box 12b Code D- 6081
22: (23668+3273)/24%+8300= 120554*.24= 28933
23: (23668+3273)/24%- (4150*4)= 95654*.24= 22957