Use 2014 tax forms and facts. The best way to do this problem is
,Use 2014 tax forms and facts.,The best way to do this problem is to prepare the 8829, then Schedule C, then Schedule SE, then 2106, then Schedule A, & B, and finally the 1040.,Item 2 is about her self employed business. This goes on Schedule C. The net income of Schedule C goes to the Schedule SE to calculate the self employment tax. The 8829 home office deduction goes to the Schedule C. You can see that any deduction on Schedule C, including the home office deduction on 8829, saves both income tax and 15.3% self employment tax. These are powerful deductions.,The second paragraph of item 2 gives you the information for the 8829 home office deduction. Usually, you can deduct a % of the common expenses of the home, based on square footage. In this case the home office is 10% of the square footage so 10% of the utilities and insurance are expenses on the 8829 (indirect column). Since we haven't studied depreciation yet they just tell you that the depreciation related solely to the home office is $800, so just plug that number in. Normally, you would also need a 4562 depreciation form but don?t bother doing it. You can also assume she has no beginning or ending inventory. ,One tricky but very important tax planning move is to take 10% of the mortgage interest and property taxes (item 5) on the 8829. This would normally go on the Schedule A, but taking it on the 8829 reduces the net Schedule C income and thus saves self-employment tax. ,Taking some of it on the Schedule C saves SE tax, but also the fee usually would not be deductible, since it is a Schedule A 2% miscellaneous deduction. The total of misc. deductions, including the tax prep fee, has to exceed 2% of AGI, which is difficult. Again we don?t have this data.,She uses the actual expense method for calculating her auto expenses on Schedule C. She has 20,000 miles on her car and 12,000 of them are business. One of the cool advantages of having a home office is that your "commute" is very short (bedroom to home office). So all mileage from the home office to a place of business is deductible. So, take the business use % times her actual auto expenses. ,Part 3 is about George's 2106, which goes to Schedule A - 2% misc. deduction. You can only use a 2106 if you are an employee. She is not an employee so don't fill one out for her. Her expenses go right on the Schedule C. ,Part 5 is about Schedules A & B. Assume the dividends are qualified and use the worksheet on page 43 of the Form 1040 General instructions (Qualified Dividends and Capital Gains Worsheet) to calculate the tax or attach your own calculation. You MUST attach your tax calculation so I can see how you did it. The general instructions are at: http://www.irs.gov/pub/irs-pdf/i1040gi.pdf,See IMG_20150427_011931597.jpg,See IMG_20150427_011917270.jpg,See IMG_20150427_011917270.jpg,
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