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SCHEDULE SE Department of the Treasury Internal Revenue Service (99) ? 2020 Go to www

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SCHEDULE SE Department of the Treasury Internal Revenue Service (99) ? 2020 Go to www.irs.gov/ScheduleSE for instructions and the latest information. ? Attach to Form 1040, 1040-SR, or 1040-NR. Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR) Part I OMB No. 1545-0074 Self-Employment Tax (Form 1040) Attachment Sequence No. 17 Social security number of person with self-employment income ? Self-Employment Tax Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had A $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . ? Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue . . . . . . . ? 4c 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 137,700 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2020 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $137,700 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . ? 9 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 14 . . . . . . . . . . . . . . . . . . . . . . . . 13 Part II Optional Methods To Figure Net Earnings (see instructions) Farm Optional Method. You may use this method only if (a) your gross farm income1 wasn’t more than $8,460, or (b) your net farm profits2 were less than $6,107. 14 Maximum income for optional methods . . . . . . . . . . . . . . . . . . . . . 15 Enter the smaller of: two-thirds (2/3) of gross farm income1 (not less than zero) or $5,640. Also, include this amount on line 4b above . . . . . . . . . . . . . . . . . . . . . . . . Nonfarm Optional Method. You may use this method only if (a) your net nonfarm profits3 were less than $6,107 and also less than 72.189% of your gross nonfarm income,4 and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution: You may use this method no more than five times. 16 Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . . . . . 17 Enter the smaller of: two-thirds (2/3) of gross nonfarm income4 (not less than zero) or the amount on line 16. Also, include this amount on line 4b above . . . . . . . . . . . . . . . . . 1 From Sch. F, line 9; and Sch. K-1 (Form 1065), box 14, code B. 2 From Sch. F, line 34; and Sch. K-1 (Form 1065), box 14, code A—minus the amount you would have entered on line 1b had you not used the optional method. For Paperwork Reduction Act Notice, see your tax return instructions. 14 5,640 15 16 17 3 From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. 4 From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z Schedule SE (Form 1040) 2020 Schedule SE (Form 1040) 2020 Part III Page 2 Attachment Sequence No. 17 Maximum Deferral of Self-Employment Tax Payments If line 4c is zero, skip lines 18 through 20, and enter -0- on line 21. 18 Enter the portion of line 3 that can be attributed to March 27, 2020, through December 31, 2020 . . 19 If line 18 is more than zero, multiply line 18 by 92.35% (0.9235); otherwise, enter the amount from line 18 20 Enter the portion of lines 15 and 17 that can be attributed to March 27, 2020, through December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Combine lines 19 and 20 . . . . . . . . . . . . . . . . . . . . . . . . . . If line 5b is zero, skip line 22 and enter -0- on line 23. 22 Enter the portion of line 5a that can be attributed to March 27, 2020, through December 31, 2020 . . 23 Multiply line 22 by 92.35% (0.9235) . . . . . . . . . . . . . . . . . . . . . . 24 Add lines 21 and 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Enter the smaller of line 9 or line 24 . . . . . . . . . . . . . . . . . . . . . . 26 Multiply line 25 by 6.2% (0.062). Enter here and see the instructions for line 12e of Schedule 3 (Form 1040) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 19 20 21 22 23 24 25 26 Schedule SE (Form 1040) 2020 AF 450 – Spring 2021 Individual Tax Return Project The following situations all occurred during 2020 (unless stated household includes the following persons: Relationship to Charlie Charlie Brown (age 62) Julie Brown (age 45) Wife Claudia Brown (age 21) Daughter Max Brown (age 5) Son Samuel Yellow (age 46) Friend otherwise), and Charlie’s Social Security # 123-45-6789 123-45-6788 123-45-6787 123-45-6786 987-65-4321 S1 (Filing Status / Dependents). (1) Charlie and Julie (calendar year taxpayers) file a joint return, and live with Max at 100 Morrissey Blvd, Boston, MA 02125. (2) Claudia (single) earns $15,000 as a part-time waitress in Chicago. She provides 40% of her own support whereas Charlie provides 60% of her support. Claudia studies at the University of Chicago as a full-time undergraduate student (Sophomore). Claudia’s taxable salaries are $6,000. (3) Samuel (single) is an old buddy of Charlie and lives with Charlie during the entire year. Since Samuel has no gross income, Charlie provides 100% of support and maintains the household for Samuel. (4) All of them are U.S. citizens. S2 (Payroll / Employee Benefits). (1) Charlie works for PwC, and his annual salary is $80,000. (2) PwC withholds $7,763 of Charlie’s salary for federal income taxes. (3) PwC provides all employees with (a) medical insurance (Charlie’s insurance cost $5,000). PwC also offers a (b) group-term life insurance where the coverage amount for Charlie is $800,000. The monthly cost per $1,000 coverage is $0.15. Assume 12-month coverage. (4) Charlie lets KPMG withhold $5,000 under the company’s flexible benefits plan; $2,750 for medical and dental expenses and $2,250 for child-care expenses. (5) PwC has a qualified pension that covers all employees. Under the plan, PwC matches contributions to the plan up to 5% of the employee’s annual salary. Charlie makes the maximum allowable contribution, i.e., 10% of his annual salary. S3 (Interest / Dividend). (1) Julie received interest of $600 on saving account at KeyBanc. Charlie received interest of $800 on State of Massachusetts bond. (2) Charlie received dividends of $5,000 from Verizon Wireless Co. where he purchased the stock 2 days before the ex-dividend date and sold it 20 days after the ex-dividend date. 1 S4 (Annuities / Social Security Benefits). (1) Charlie purchased an annuity from an insurance company for $120,000. He is to receive $900 per month for life starting January 2020. His life expectancy is assumed to be 20 years from the annuity starting date (i.e., fixed payments). (2) Charlie has $12,000 of social security benefit. According to the formula, assume the taxable social security benefit is equal to $8,000. S5 (Income Tax Refund from State/Local Government). Charlie received a refund, $100, from the state of Massachusetts when he filed his state income tax return on March 17th, 2020. Assume Charlie claimed itemize deduction (not standard deduction) and deducted $5,000 of state/local income tax for his 2019 Federal tax return (which he also filed on March 17th, 2020). S6 (Business Income or Loss). (1) Julie is a dentist and operates “Julie’s Smile” as a sole proprietorship (accrual basis), which is located at 200 Morrissey Blvd, Boston, MA 02125. The principal business is “Offices of Dentists,” and the code is “621210.” Julies, who materially participates in the business, has the following gross receipts and expenses related to her business: ? gross receipts from patients $150,000 ? advertising $10,000 ? insurance premium for medical accidents $20,000 ? equipment rental $30,000 ? office rent $40,000 ? supplies $25,000 (2) Julie is considering opening a new restaurant in Washington D.C. She incurs $1,000 for travel, $4,000 for consulting expenses, and $5,000 for market analysis. She did not acquire or start a new restaurant. (3) Julie made estimated quarterly payments of $1,600 during the year (i.e., each $400 quarterly payment). (4) If Julie’s business has profit, self-employment taxes need to be considered. S7 (Capital Gain or Loss). Regarding capital assets which Charlie had own, the following situations occurred: (1) LinkedIn Stock: date acquired 02/27/2020, date sold 12/08/2020, selling price $3,000, adjusted basis $2,800. (2) Google Bond: date acquired 10/19/2014, date sold 02/25/2020, selling price $4,000, adjusted basis $5,100. (3) Personal Car: date acquired 10/15/2020, date sold 12/24/2020, selling price $5,500, adjusted basis $5,000. In addition, Charlie had $2,500 of short-term capital loss carried from 2019 and $600 of longterm capital loss carried from 2019. 2 S8 (Prize / Personal Physical Injury). (1) Julie had $30,000 of (reportable) gambling winnings. (2) Charlie got hit by a truck driver who had a blood alcohol level of .15. He received $40,000 of medical care, $8,000 of loss of income, and $22,917 of punitive damage. S9 (Itemized Deduction). (1) Charlie spends $17,500 on qualified medical and dental expenses not covered by insurance. He receives $2,750 from the flexible benefits plan for these expenses. (2) The following situations are related to state and local taxes: 1) During 2020, Charlie had $4,000 of state income taxes withheld in his W-2. 2) Charlie and Julie maintained their sales tax receipts where the total is $5,500. The optional sales tax amount given by the IRS table is $2,000. (3) The following situations are related to Charlie and Julie’s personal home: 1) Charlie and Julie paid real estate taxes of $6,000 on their home. 2) Qualified interest on their home mortgage was $9,800. (4) Charlie and Julie contributed $5,000 cash to Boston Church and gave used clothing (fair market value of $700) to the Salvation Army. They also had $1,750 of charitable contribution carried over from 2019. The contribution limit is 30% of AGI. (5) Greedy Julie went to the casino several times. She lost $40,000 of her own money. S10 (Child Tax Credit / Credit for Other Dependents). First, determine who is eligible for the tax credit(s). Then, calculate the amount of tax credit(s). S11 (Credit for Child and Dependent Care Expenses). Charlie and Julie incurred qualified child-care of $7,000 for Max. Charlie received $2,250 from the flexible benefits plan for these expenses. The followings are the information regarding the care provider. 1) Name: “Learning Express” 2) Address: “300 Morrissey Blvd., Boston, MA 02125 3) EIN: 45-1111111 S12 (Education Tax Credit). Charlie and Julie paid qualified tuition of $6,500 for Claudia. 3 Required: Based on the information given above, determine the amount of 2020 tax due (or tax refund). You are required to submit the following 14 documents: [1]. Form 1040 (“U.S. Individual Income Tax Return”) [2]. Form 1040 – Schedule 1 (“Additional Income and Adjustments to Income”) [3]. Form 1040 – Schedule 2 (“Additional Taxes”) [4]. Form 1040 – Schedule 3 (“Additional Credits and Payments”) [5]. Form 1040 – Schedule A (“Itemized Deductions”) [6]. Form 1040 – Schedule B (“Interest and Ordinary Dividends”) [7]. Form 1040 – Schedule C (“Profit of Loss from Business”) [8]. Form 1040 – Schedule D (“Capital Gains and Losses”) [9]. Form 1040 – Schedule SE (“Self-Employment Tax”) [10]. Form 2441 (“Child and Dependent Care Expenses”) [11]. Form 8863 (“Education Credits”) [12]. Form 8949 (“Sales and Other Dispositions of Capital Assets”) [13]. Form 8995 (“Qualified Business Income Deduction Simplified Computation”) [14]. Separate formula sheet(s) explaining how you derived the number(s) in: 1. Form 1040, page 1 (“Dependents”) 2. Form 1040, line 1 (“Wages, salaries, tips, etc.”) 3. Form 1040, line 5b (“Taxable pensions and annuities”) 4. Form 1040 – Schedule C, part V (“Other expenses”) 5. Form 1040 – Schedule 1, line 8 (“Other income”) 6. Form 1040 – Schedule A, line 1 (“Medical and dental expenses”) 7. Form 1040 – Schedule A, line 14 (“Gift to charity”) 8. Form 1040 – Schedule A, line 16 (“Other miscellaneous deductions”) 9. Form 1040, line 8 (“Standard deductions or itemized deduction”) 10. Form 8995, line 11 (“Taxable income before qualified business income deduction”) and line 12 (“Net capital gain”) 11. Form 1040, line 16 (“Tax”) 12. Form 1040, lines 19 (“Child tax credit / credit for other dependents”) 13. Form 2441, line 10 (“Tax liability limit”) 14. Form 8863, line 19 (“Nonrefundable education credits”) 15. Form 1040 – Schedule 3, line 4 (“Retirement savings contributions credit”) Note: 1. You need not submit any other documents or tax forms than those required above. 2. It is important to submit your formula sheet (Item [#14]), so that you get partial credits for incorrect answers [refer to the formula sheet for the in-class exercise posted on Blackboard]. 3. Make sure the documents are readable. Occasionally, the tax forms are not saved properly. One recommendation is to change to name of the tax form when you attempt to save it. 4. Only one of the group members needs to submit the documents on Blackboard. 5. Each step of the process will be graded at a separate basis. Therefore, please finish throughout the end even though you feel uncertain about your answers in the middle steps. Please email me whenever you have any questions. 4 SCHEDULE SE Department of the Treasury Internal Revenue Service (99) ? 2020 Go to www.irs.gov/ScheduleSE for instructions and the latest information. ? Attach to Form 1040, 1040-SR, or 1040-NR. Name of person with self-employment income (as shown on Form 1040, 1040-SR, or 1040-NR) Part I OMB No. 1545-0074 Self-Employment Tax (Form 1040) Attachment Sequence No. 17 Social security number of person with self-employment income ? Self-Employment Tax Note: If your only income subject to self-employment tax is church employee income, see instructions for how to report your income and the definition of church employee income. If you are a minister, member of a religious order, or Christian Science practitioner and you filed Form 4361, but you had A $400 or more of other net earnings from self-employment, check here and continue with Part I . . . . . . . . ? Skip lines 1a and 1b if you use the farm optional method in Part II. See instructions. 1a Net farm profit or (loss) from Schedule F, line 34, and farm partnerships, Schedule K-1 (Form 1065), 1a box 14, code A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . b If you received social security retirement or disability benefits, enter the amount of Conservation Reserve Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH 1b ( ) Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or (loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than 2 farming). See instructions for other income to report or if you are a minister or member of a religious order 3 Combine lines 1a, 1b, and 2 . . . . . . . . . . . . . . . . . . . . . . . . . 3 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 . 4a Note: If line 4a is less than $400 due to Conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here . . . . . 4b c Combine lines 4a and 4b. If less than $400, stop; you don’t owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -0- and continue . . . . . . . ? 4c 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income . . . . . . . . . . . . . 5a b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -0- . . . . . . . . . . . . . 5b 6 Add lines 4c and 5b . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or 137,700 the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2020 . . . . . . . . . . . 7 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $137,700 or more, skip lines 8b through 10, and go to line 11 . . . . . . . . . . . . . . . 8a b Unreported tips subject to social security tax from Form 4137, line 10 . . . 8b c Wages subject to social security tax from Form 8919, line 10 . . . . . . 8c d Add lines 8a, 8b, and 8c . . . . . . . . . . . . . . . . . . . . . . . . . . 8d 9 Subtract line 8d from line 7. If zero or less, enter -0- here and on line 10 and go to line 11 . . . ? 9 10 Multiply the smaller of line 6 or line 9 by 12.4% (0.124) . . . . . . . . . . . . . . . . 10 11 Multiply line 6 by 2.9% (0.029) . . . . . . . . . . . . . . . . . . . . . . . . 11 12 Self-employment tax. Add lines 10 and 11. Enter here and on Schedule 2 (Form 1040), line 4 . . 12 13 Deduction for one-half of self-employment tax. Multiply line 12 by 50% (0.50). Enter here and on Schedule 1 (Form 1040), line 14 . . . . . . . . . . . . . . . . . . . . . . . . 13 Part II Optional Methods To Figure Net Earnings (see instructions) Farm Optional Method. You may use this method only if (a) your gross farm income1 wasn’t more than $8,460, or (b) your net farm profits2 were less than $6,107. 14 Maximum income for optional methods . . . . . . . . . . . . . . . . . . . . . 15 Enter the smaller of: two-thirds (2/3) of gross farm income1 (not less than zero) or $5,640. Also, include this amount on line 4b above . . . . . . . . . . . . . . . . . . . . . . . . Nonfarm Optional Method. You may use this method only if (a) your net nonfarm profits3 were less than $6,107 and also less than 72.189% of your gross nonfarm income,4 and (b) you had net earnings from self-employment of at least $400 in 2 of the prior 3 years. Caution: You may use this method no more than five times. 16 Subtract line 15 from line 14 . . . . . . . . . . . . . . . . . . . . . . . . . 17 Enter the smaller of: two-thirds (2/3) of gross nonfarm income4 (not less than zero) or the amount on line 16. Also, include this amount on line 4b above . . . . . . . . . . . . . . . . . 1 From Sch. F, line 9; and Sch. K-1 (Form 1065), box 14, code B. 2 From Sch. F, line 34; and Sch. K-1 (Form 1065), box 14, code A—minus the amount you would have entered on line 1b had you not used the optional method. For Paperwork Reduction Act Notice, see your tax return instructions. 14 5,640 15 16 17 3 From Sch. C, line 31; and Sch. K-1 (Form 1065), box 14, code A. 4 From Sch. C, line 7; and Sch. K-1 (Form 1065), box 14, code C. Cat. No. 11358Z Schedule SE (Form 1040) 2020 Schedule SE (Form 1040) 2020 Part III Page 2 Attachment Sequence No. 17 Maximum Deferral of Self-Employment Tax Payments If line 4c is zero, skip lines 18 through 20, and enter -0- on line 21. 18 Enter the portion of line 3 that can be attributed to March 27, 2020, through December 31, 2020 . . 19 If line 18 is more than zero, multiply line 18 by 92.35% (0.9235); otherwise, enter the amount from line 18 20 Enter the portion of lines 15 and 17 that can be attributed to March 27, 2020, through December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Combine lines 19 and 20 . . . . . . . . . . . . . . . . . . . . . . . . . . If line 5b is zero, skip line 22 and enter -0- on line 23. 22 Enter the portion of line 5a that can be attributed to March 27, 2020, through December 31, 2020 . . 23 Multiply line 22 by 92.35% (0.9235) . . . . . . . . . . . . . . . . . . . . . . 24 Add lines 21 and 23 . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Enter the smaller of line 9 or line 24 . . . . . . . . . . . . . . . . . . . . . . 26 Multiply line 25 by 6.2% (0.062). Enter here and see the instructions for line 12e of Schedule 3 (Form 1040) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 19 20 21 22 23 24 25 26 Schedule SE (Form 1040) 2020