Problem 3-1 Schedule C (LO 3.1, 3.3, 3.5, 3.7) Scott Butterfield is...

Problem 3-1
Schedule C (LO 3.1, 3.3, 3.5, 3.7)

Scott Butterfield is self-employed as a CPA. He uses the cash method of accounting, and his Social Security number is 644-47-7833. His principal business code is 541211. Scott’s CPA practice is located at 678 Third Street, Riverside, CA 92860. Scott’s income statement for the year shows the following:

Income Statement
Scott Butterfield, CPA Income Statement 12/31/2022
	Current Period	Prior Period
	1/1/2022 to 12/31/2022	1/1/2021 to 12/31/2021
REVENUES
Tax Services	$76,124	$75,067
Accounting Services	49,081	48,860
Other Consulting Services	10,095	10,115
TOTAL REVENUES	135,300	134,042
COST OF SERVICES
Salaries	35,000	30,100
Payroll Taxes	3,098	2,387
Supplies	1,302	1,548
TOTAL COST OF SERVICES	39,400	34,035
GROSS PROFIT (LOSS)	95,900	100,007
OPERATING EXPENSES
Advertising and Promotion	250	350
Business Licenses and Permits	300	250
Charitable Contributions	400	275
Continuing Education	500	300
Dues and Subscriptions	2,800	3,500
Insurance	900	875
Meals and Entertainment	4,400	5,500
Office Expense	200	150
Postage and Delivery	100	50
Printing and Reproduction	50	100
Office Rent	12,000	14,000
Travel	900	865
Utilities	3,000	2,978
TOTAL OPERATING EXPENSES	25,800	29,193

NET INCOME (LOSS)	$70,100	$70,814

Scott also mentioned the following:

The expenses for dues and subscriptions were his country club membership dues for the year.
$400 of the charitable contributions were made to a political action committee.
Scott does not generate income from the sale of goods and therefore does not record supplies and wages as part of cost of goods sold.
Scott placed a business auto in service on January 1, 2019 and drove it 4,000 miles for business (equally over the course of the year), 3,250 miles for commuting, and 4,500 miles for nonbusiness purposes. No business expenses for the car are included above. Scott wishes to use the standard mileage method. His wife has a car for personal use.
Meals and Entertainment expense includes $2,500 related to golf greens fees for entertaining clients, $1,000 for business meals provided by restaurants, and $900 for the bagels and doughnuts once a month for all employees.

Complete Schedule C for Scott showing Scott’s net taxable profit from self-employment. Assume Scott has evidence to support his deductions. If required, only use the minus sign to indicate a net loss. When required, round amounts to the nearest dollar.

SCHEDULE C
(Form 1040)

Department of the Treasury Internal Revenue Service

Profit or Loss From Business
^{(Sole Proprietorship)}
▶ Go to www.irs.gov/ScheduleC for instructions and the latest information.
▶ Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships must generally file Form 1065.

OMB No. 1545-0074

2022

Attachment
Sequence No. 09

Name of proprietor
Scott Butterfield

Social security number (SSN)
644-47-7833

Principal business or profession, including product or service (see instructions)
Accounting Services

Enter code from instructions
▶ 541211

Business name. If no separate business name, leave blank.

Employer ID number (EIN),
(see instr.)

Business address (including suite or room no.)

▶

678 Third Street

City, town or post office, state, and ZIP code

Riverside, CA 92860

Accounting method: (1) ☒ Cash (2) ◻ Accrual (3) ◻ Other (specify) ▶

G	Did you “materially participate” in the operation of this business during 2022? If “No,” see instructions for limit on losses	☒ Yes ◻ No
H	If you started or acquired this business during 2022, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶	◻
I	Did you make any payments in 2022 that would require you to file Form(s) 1099? (see instructions) . . . . . . . . . . . . . . .	◻ Yes ☒ No
J	If “Yes,” did you or will you file required Forms 1099? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	◻ Yes ◻ No

Part I

Income

1	Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the “Statutory employee” box on that form was checked . . . . . . . . . . . . . . . . . . . . . ▶ ◻	1	fill in the blank 1
2	Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
3	Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3	fill in the blank 2
4	Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
5	Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5	fill in the blank 3
6	Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) . . . . . . . . .	6
7	Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶	7	fill in the blank 4

Part II

Expenses. Enter expenses for business use of your home only on line 30.

8	Advertising . . . . . . . . . . . . . . .	8	fill in the blank 5	18	Office expense (see instructions) . . . . .	18	fill in the blank 6
9	Car and truck expenses (see			19	Pension and profit-sharing plans . . . . . .	19
	instructions) . . . . . . . . . . . . . .	9	fill in the blank 7	20	Rent or lease (see instructions):
10	Commissions and fees . . . . . . .	10		a	Vehicles, machinery, and equipment . . .	20a
11	Contract labor (see instructions)	11		b	Other business property . . . . . . . . . . .	20b	fill in the blank 8
12	Depletion . . . . . . . . . . . . . . . .	12		21	Repairs and maintenance . . . . . . . . . .	21
13	Depreciation and section 179			22	Supplies (not included in Part III) . . . .	22	fill in the blank 9
	expense deduction (not included			23	Taxes and licenses . . . . . . . . . . . . . . .	23	fill in the blank 10
	in Part III) (see instructions)	13		24	Travel and meals:
14	Employee benefit programs			a	Travel . . . . . . . . . . . . . . . . . . . . . . .	24a	fill in the blank 11
	(other than on line 19) . . . . . . .	14		b	Deductible meals
15	Insurance (other than health)	15	fill in the blank 12		(see instructions) . . . . . . . . . . . . . . .	24b	fill in the blank 13
16	Interest (see instructions):			25	Utilities . . . . . . . . . . . . . . . . . . . . . . .	25	fill in the blank 14
a	Mortgage (paid to banks, etc.)	16a		26	Wages (less employment credits) . . . . .	26	fill in the blank 15
b	Other . . . . . . . . . . . . . . . . . . .	16b		27a	Other expenses (from line 48) . . . . . . .	27a	fill in the blank 16
17	Legal and professional services	17		b	Reserved for future use . . . . . . . . . .	27b

28	Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . . . . . . . . . . ▶		28	fill in the blank 17
29	Tentative profit or (loss). Subtract line 28 from line 7. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		29	fill in the blank 18
30	Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method. See instructions. Simplified method filers only: Enter the total square footage of (a) your home: _____________ and (b) the part of your home used for business: _____________ Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		30
31	Net profit or (loss). Subtract line 30 from line 29. • If a profit, enter on both Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2. (If you checked the box on line 1, see instructions). Estates and trusts, enter on Form 1041, line 3. • If a loss, you must go to line 32.	}	31	fill in the blank 19
31		}

32	If you have a loss, check the box that describes your investment in this activity. See instructions. • If you checked 32a, enter the loss on both Schedule 1 (Form 1040), line 3, and on Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions). Estates and trusts, enter on Form 1041, line 3. • If you checked 32b, you must attach Form 6198. Your loss may be limited.	}	32a ◻ All investment is at risk.
			32b ◻ Some investment is not at risk.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

Schedule C (Form 1040) 2022

Schedule C (Form 1040) 2022

Page 2

Part III

Cost of Goods Sold (see instructions)

33	Method(s) used to
	value closing inventory: a ◻ Cost b ◻ Lower of cost or market c ◻ Other (attach explanation)
34	Was there any change in determining quantities, costs, or valuations between opening and closing inventory?
	If “Yes,” attach explanation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		◻ Yes ◻ No
35	Inventory at beginning of year. If different from last year’s closing inventory, attach explanation . . . . . . . . .	35
36	Purchases less cost of items withdrawn for personal use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
37	Cost of labor. Do not include any amounts paid to yourself . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
38	Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	38
39	Other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	39
40	Add lines 35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40
41	Inventory at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
42	Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 . . . . . . . . . . . . . . . .	42

Part IV	Information on Your Vehicle. Fill in the blanks in this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562.

43	When did you place your vehicle in service for business purposes? (month/day/year) ▶ 1/3/19 1/1/19 1/3/20
44	Of the total number of miles you drove your vehicle during 2022, enter the number of miles you used your vehicle for:
	a Business fill in the blank 21 b Commuting (see instructions) fill in the blank 22 c Other fill in the blank 23
45	Was your vehicle available for personal use during off-duty hours? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo
46	Do you (or your spouse) have another vehicle available for personal use? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo
47a	Do you have evidence to support your deduction? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo
b	If “Yes,” is the evidence written? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	YesNo

Part V

Other Expenses. List below business expenses not included on lines 8-26 or line 30.

Not applicableContinuing educationContribution to Political Action CommitteeTax services	fill in the blank 29
Not applicablePrintingNondeductible portion of meals and entertainmentCountry club dues	fill in the blank 31

Problem 3-1 Schedule C (LO 3.1, 3.3, 3.5, 3.7) Scott Butterfield is…