Preparing the Return for Stanley Price

Stanley Price owns and operates Stan's Barber Shop. He has been in business for 32 years. Stanley uses the cash method of accounting and files his return on a calendar year basis.

Schedule C-EZ

Stanley uses Schedule C-EZ to report the net profit from his business because he meets all of the requirements listed in Part I of the schedule. Stanley enters his name and social security number at the top of the schedule.

Part I-General Information

Stanley fills out Part I as follows:

Line A. He enters his principal business.

Line B. 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."

Line C. He enters the name of his business--"Stan's Barber Shop."

Line D. 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.

Line E. He enters his business address.

Part II-Figure Your Net Profit

Stanley fills out Part II as follows:

Line 1-Gross receipts. 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.

Line 2-Total expenses. Stanley enters his expenses for the year. They total $2,330 and consist of the following:

• Advertising in the local newspaper--$145
• Supplies--$475
• Business licenses--$150
• Utilities (electricity and water)--$360
• Rent--$1,200

Line 3-Net profit. Stanley subtracts his total expenses ($2,330) from his gross receipts ($27,000) to get his net profit of $24,670. He enters his net profit here, on line 12 of Form 1040, and on line 2, Section A of Schedule SE (Form 1040).

Part III-Information on Your Vehicle

Stanley leaves this part blank because he is not deducting car or truck expenses.

Schedule SE--Self-Employment Tax

After Stanley prepares Schedule C-EZ, he fills out Schedule SE. He starts by entering his name and social security number at the top of the schedule. Then he reads the chart on page 1 of the schedule, which tells him he can use Section A--Short Schedule SE to figure his self-employment tax. He fills out the following lines in Section A.

Lines 2 and 3. He enters $24,670. This is his net profit from line 3 of Schedule C-EZ.

Line 4. He multiplies $24,670 by .9235 to get his net earnings from self-employment ($22,783). This is his net profit subject to self-employment tax.

Line 5. Because the amount on line 4 is less than $80,400, Stanley multiplies the amount on line 4 ($22,783) by .153 to get his self-employment tax of $3,486. He enters that amount here and on line 53 of Form 1040.

Line 6. He multiplies the amount on line 5 by .5 to get his deduction for one-half of self-employment tax of $1,743. He enters that amount here and on line 27 of Form 1040.

Form 1040

Stanley fills out Form 1040 as follows:

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

Presidential election campaign fund. Stanley chooses to have $3 go to this fund. He checks the box under "Yes."

Line 1. Stanley checks the box on this line because he is filing as single.

Lines 6a and 6d. 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.

Line 8a. Stanley enters $295 of taxable interest credited to his personal savings account for the year.

Line 9. Stanley enters $145 of dividends he received from ABC Corporation.

Line 12. He enters his business net profit of $24,670 from line 3 of Schedule C-EZ.

Line 22. Stanley adds the amounts on lines 7 through 21 and enters the total, $25,110.

Line 23. 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.

Line 27. Stanley enters one-half of his self-employment tax. He got this amount from line 6 in Section A of Schedule SE.

Line 32. Stanley adds the amounts on lines 23 through 31a and enters the total, $3,743.

Line 33. Stanley subtracts the amount on line 32 from the amount on line 22 to arrive at his adjusted gross income, $21,367. He also enters this amount on line 34.

Line 36. He enters $4,550. This is the standard deduction for a single filer.

Line 37. Stanley subtracts line 36 from line 34 to get $16,817.

Line 38. He multiplies $2,900 by the number of exemptions claimed on line 6d to get his total exemptions, $2,900.

Line 39. Stanley subtracts line 38 from line 37 to get his taxable income, $13,917.

Line 40. 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 $13,917. He finds the bracket for incomes of at least $13,900, but less than $13,950 and sees that the tax for a person filing as single is $2,089. He enters this amount here.

Lines 41 and 42. Because he does not owe alternative minimum tax, he enters -0- on line 41 and $2,089 on line 42.

Line 47. Because Stanley received the advance payment of his 2001 taxes, he is not entitled to claim the rate reduction credit.

Lines 51 and 52. Because Stanley does not have any of the credits listed on lines 43 through 50, he enters -0- on line 51 and $2,089 on line 52.

Line 53. He enters $3,486 from line 5 in Section A of Schedule SE.

Page 1 of Form 1040 for Stanley Price

Page 2 of Form 1040 for Stanley Price

Page 1 of Schedule C-EZ (Form 1040) for Stanley Price

Page 1 of Schedule SE (Form 1040) for Stanley Price

Line 58. Stanley adds the amounts on lines 52 through 57 and enters the total, $5,575.

Line 60. He enters $6,000 of estimated tax payments he made for the year.

Line 66. He enters $6,000.

Lines 67 and 68a. Stanley subtracts line 58 from line 66 to arrive at the amount he overpaid, $425. He wants this amount refunded to him so he enters it on line 68a. 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 68b, c, and d.

Signing and assembling the return. He 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 Number" 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.

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