Rocco operates a beauty salon as a sole proprietorship. Rocco also owns and rents an apartment building. In 2023, Rocco had the following income and expenses. You may assume that Rocco will owe $2,502 in self-employment tax on his salon income, with $1,251 representing the employer portion of the self-employment tax. You may also assume that his divorce from Svetlana was finalized in 2016.
| Interest income | $ 11,255 |
|---|---|
| Salon sales and revenue | 86,360 |
| Salaries paid to beauticians | 45,250 |
| Beauty salon supplies | 23,400 |
| Alimony paid to his ex-wife, Svetlana | 6,000 |
| Rental revenue from apartment building | 31,220 |
| Depreciation on apartment building | 12,900 |
| Real estate taxes paid on apartment building | 11,100 |
| Real estate taxes paid on personal residence | 6,241 |
| Contributions to charity | 4,237 |
b-2. Complete page 1 (through line 11) of Form 1040 for Rocco.
Filing taxes can be a complex process, especially for individuals with diverse sources of income and various deductible expenses. In this scenario, we will help Rocco, a sole proprietor of a beauty salon and owner of an apartment building, complete the first page of Form 1040 for his 2023 tax return.
Personal Information: Begin by filling out Rocco’s personal information at the top of Form 1040, including his name, address, Social Security Number (SSN), and any filing status changes. Since there’s no information about a change in filing status or dependent claims, we’ll assume Rocco maintains his status from the previous year.
Filing Status: Rocco’s filing status appears to be either Single or Head of Household, but this is dependent on his family situation, such as having dependents living with him. Based on the given information, let’s assume he remains Single.
Income: Now, let’s calculate Rocco’s total income. We have several sources of income to consider:
a. Interest Income: $11,255 b. Salon Sales and Revenue: $86,360 c. Rental Revenue from Apartment Building: $31,220
Total Income: $128,835
Adjusted Gross Income (AGI): To calculate AGI, we’ll subtract specific deductions. In this case, Rocco’s only deduction is his alimony payment to Svetlana, which is $6,000.
AGI: $128,835 – $6,000 = $122,835
Standard Deduction: Since we don’t have information on itemized deductions or specific circumstances that would require an alternative deduction, we’ll assume Rocco takes the standard deduction. For 2023, the standard deduction for a Single filer is $12,950.
Taxable Income: To calculate Rocco’s taxable income, subtract the standard deduction from his AGI:
Taxable Income: $122,835 – $12,950 = $109,885
Tax Calculation: Now, we’ll determine Rocco’s tax liability using the tax brackets for Single filers in 2023. These rates are progressive, so different portions of his income will be taxed at different rates.
Self-Employment Tax: Rocco owes $2,502 in self-employment tax on his salon income. This tax includes both the employee and employer portions. Therefore, the employer portion is $1,251.
Total Tax: Calculate the total tax by adding Rocco’s income tax and self-employment tax:
Total Tax: Income Tax + Self-Employment Tax = [Calculated Income Tax] + $2,502
Payments and Credits: Include any withholding, estimated tax payments, or credits Rocco may have made during the year. However, this information is not provided in the scenario.
Estimated Tax Penalty: There’s no information about estimated tax penalties in the scenario.
This completes the first page of Form 1040 for Rocco’s 2023 tax return. It’s essential to remember that tax preparation can be complex, and various factors can affect the final tax liability. Consulting with a tax professional is recommended to ensure accurate and compliant tax filings.
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