Client income statement and ending tax basis

Assignment Help Taxation

Reference no: EM133752091

Question: Business income on Schedule C generates two types of taxes. What are these taxes and how are they calculated?

Luke has provided the complete income statement from his QuickBooks program for you, with all of his costs and revenues included. Remember that Luke is not an accountant and may have made some mistakes as he recorded costs. He is counting on you to fix them as you complete his Schedule C for Luke's Diner. Since he is paying your high hourly rate to complete this work for him, be sure to give clear explanations in your workpapers about which things he can actually deduct and which things he cannot. As you complete the income statement on Schedule C, you should also remember that it is not your job to audit your client as you work, although you should also not knowingly break the law. Luke is trusting you to know how to lower his taxable income legally as much as possible. He realizes that you will most likely need to look up multiple issues to be able to complete the form since no one can know everything! If you have questions about items on the provided income statement, please ask me so that I can pass your questions onto the client.
In addition to completing the Schedule C for the diner, Luke needs to know how income from his diner affects his and Lorelai's overall tax return. Earning income from self-employment is taxable, just like earning wages from an employer. However, it also entails a few details that employees do not have to deal with, so be sure to include those items in your workpapers.
You do not have to include any forms other than the Schedule C, but be sure to provideany explanations of items included elsewhere in Luke and Lorelai's return so that they understandthe whole impact of including the diner in their Form 1040. Remember that people who are self employed are allowed to deduct items on Schedule 1 that employees are not allowed to deduct so be sure to look at Schedule 1 for those deductions. Explanations for Schedule 1 items can be found in Chapter 6.
Time to get started! Use the income statement from Luke, provided below, as your starting place.

REQUIRED (in this order and STAPLED):

1. Attached cover sheet or equivalent (Feel free to remove the pictures before printing)

2. Schedule C

3. Client income statement and ending tax basis income statement presented side by side for comparison purposes. The ending tax basis income statement is the information presented on the Schedule C tax form.

4. A list of items related to Luke's Diner included in the Form 1040 somewhere OTHER than the Schedule C (Hint: you may want to check out Chapter 8 in addition to Chapter 6)

5. Workpapers with complete explanations of items that you have changed from Luke's original income statementand of course, all calculations

Reference no: EM133752091

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