AC256 Unit 7 Schedule C and Schedule SE Problem Example

Reviewed by Chester Goodwin, MBA Federal Tax Purdue University Global Free custom sample in 24 to 48h

Two taxes on one profit are computed in this AC256 Unit 7 business income problem for a composite self-employed drone photographer who shoots listing photos for real estate agents. Purdue Global AC 256, Federal Tax, asks BS in Accounting students to build Schedule C, recover equipment costs and carry the net profit into both income tax and self-employment tax. Lena's $68,400 of receipts, less supplies, insurance, a business share of her phone, 9,800 miles at 70 cents, half of client meals, software, certificate fees, a simplified home office and $5,600 of Section 179 expense, leaves $49,305 of profit. Schedule SE applies the 92.35 percent step and 15.3 percent rate for $6,967 of tax, half of it deductible. The qualified business income deduction is capped at $6,014, and substantiation notes close the problem.

CourseAC256 Federal Tax
UnitUnit 7
Paper typeBusiness income problem
LengthAbout 570 words, 5 pages double-spaced
FormatAPA 7 student paper
SchoolPurdue University Global
ProgramBS in Accounting
UpdatedOctober 2026

Free sample paper for AC256 Unit 7

1

Two Taxes on One Profit: A Unit 7 Schedule C and Schedule SE for a Self-Employed Real Estate Drone Photographer

[Student Name]

Purdue University Global

AC256: Federal Tax

Unit 7 Business Income Problem

[Instructor Name]

[Date]

The photographer, her business and all amounts are composite; the statutes and IRS sources cited are real, and amounts are for tax year 2025.

What this part is doingNaming the two taxes on one profit in the lead shows the grader both schedules are covered and linked.
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Schedule C: Income and Expenses

Gross receipts, from 1099-NEC forms and direct payments: $68,400.

Expenses by category:

1. Supplies, batteries, propellers and memory cards: $1,900.

2. Business insurance, drone liability and equipment coverage: $1,450.

3. Phone plan, $1,200 a year at a 70 percent business share: $840.

4. Car expenses: 9,800 business miles at the 2025 standard mileage rate of 70 cents, $6,860.

5. Meals with real estate agents discussing upcoming shoots, $1,100, deductible at 50 percent under Section 274(n): $550.

6. Photo editing and mapping software subscriptions: $720.

7. Remote pilot certificate renewal training and test fees: $175.

8. Home office, simplified method: 200 square feet at $5, $1,000.

9. Depreciation and Section 179 expense, from the cost recovery table: $5,600.

Total expenses: $19,095. Net profit: $68,400 minus $19,095 equals $49,305.

Cost Recovery Table

1. Drone with camera, placed in service March 2025: cost $3,400; five-year property; Section 179 elected for the full cost, $3,400.

2. Laptop for editing, placed in service March 2025: cost $2,200; five-year property; Section 179 elected for the full cost, $2,200.

Total first-year recovery: $5,600. Both assets are used only for the business. The election is well within the 2025 dollar limit and does not exceed Lena's business income, the two limits Section 179 imposes (Election to Expense Certain Depreciable Business Assets, 2024).

Schedule SE

1. Net profit: $49,305.

2. Net earnings from self-employment: $49,305 times 92.35 percent equals $45,533.

3. Self-employment tax at the combined 15.3 percent, 12.4 points for Social Security and 2.9 for Medicare (Tax on Self-Employment Income, 2024), since $45,533 sits well under the year's Social Security earnings ceiling: $6,967.

4. Deduction for half of self-employment tax: $3,483.

The 92.35 percent step exists because an employee's Social Security and Medicare are figured on wages that exclude the employer's half; reducing net earnings by 7.65 percent gives the self-employed person the same base.

What this part is doingThe highlighted sentence explains the step students most often perform without understanding, which is where interpretation credit sits.
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Where the Profit Goes

Into income: the $49,305 enters Form 1040 through Schedule 1. Back out: the $3,483 deduction for half the self-employment tax is an adjustment on Schedule 1, so adjusted gross income from the business is $45,822. Onto the tax: the $6,967 enters Schedule 2 as an additional tax.

The qualified business income deduction then applies. Lena's qualified business income is $49,305 less the $3,483 deduction, or $45,822, and 20 percent is $9,164. The deduction is limited to 20 percent of taxable income before it, $45,822 less the $15,750 standard deduction for a single filer, or $30,072, which caps it at $6,014 (Internal Revenue Service, 2025).

Notes

The meals deduction requires a business discussion and a record of who attended. Mileage needs a log with dates and destinations. The home office must be used regularly and only for the business. Without these records, the expenses that reduce both taxes would be at risk in an examination. Because no employer withholds for her, Lena should also make quarterly estimated payments for 2026, sized to cover both her income tax and roughly $7,000 of self-employment tax, to avoid an underpayment penalty.

What this part is doingClosing on the records behind each deduction shows awareness that the numbers depend on substantiation.
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References

Election to Expense Certain Depreciable Business Assets, 26 U.S.C. § 179 (2024).

Internal Revenue Service. (2025). Instructions for Schedule SE (Form 1040), Self-employment tax. https://www.irs.gov/instructions/i1040sse

Tax on Self-Employment Income, 26 U.S.C. § 1401 (2024).

Reading the AC 256 Unit 7 instructions

The seventh AC256 unit gives a sole proprietor's receipts and expenses and asks for Schedule C, cost recovery and Schedule SE. List gross receipts, then expenses by category, applying each limit: the business-use share of mixed-use items, the standard mileage rate for the year or actual costs, the 50 percent limit on business meals and the home office method. Build a cost recovery table for new equipment showing the class, any Section 179 election and depreciation on the rest. Compute net profit. On Schedule SE, multiply profit by 92.35 percent and apply the self-employment tax rates, watching the Social Security wage base. Carry the profit to income, the tax to Schedule 2 and the half deduction to Schedule 1. Cite the Code and IRS instructions in APA 7.

Inside the AC256 Unit 7 example

The sample lists $68,400 of receipts and nine expense lines, each with its rule, totaling $19,095. A cost recovery table elects Section 179 for a drone and a laptop, both five-year property used only in the business, and explains the two Section 179 limits. Schedule SE computes $45,533 of net earnings, $6,967 of tax and a $3,483 deduction. The highlighted sentence explains the 92.35 percent step. A section traces the profit into income, the deduction back out and the tax onto Schedule 2, then computes the qualified business income deduction and its taxable income cap. Notes cover the records each deduction requires and recommend quarterly estimated payments for the next year.

Where the points sit in the AC256 Unit 7 rubric

Business income problems are graded on correct expenses, correct limits and correct linkage between schedules. Mixed-use items must be reduced to the business share, meals to 50 percent, and mileage to the year's rate. Cost recovery must name the property class and any election. Schedule SE must use 92.35 percent of net profit and the current rates. Carrying half the tax back as an adjustment is a frequent scoring point. The qualified business income deduction, where included, must respect its taxable income limit. Notes on substantiation add credit. Clear schedules matter because graders follow the profit from Schedule C to three other places, and the final points go to APA 7 citations of the Code and the Schedule SE instructions.

AC256 Unit 7 help: mistakes that cost points

The most frequent Schedule C error is deducting the whole phone or vehicle cost without a business-use share. Others deduct meals in full. Equipment is expensed without noting the election or its limits. Schedule SE is computed on the full profit instead of 92.35 percent. The half of self-employment tax is forgotten as an adjustment, or it is subtracted on Schedule C. The qualified business income deduction is taken at 20 percent of profit without the cap. When your proprietor's receipts and expenses are listed, our team can build the schedules and link them for your section.

Get an AC256 Unit 7 example written to your instructions

Receipts, expenses and asset purchases from the Unit 7 pattern, with your section's instructions and rubric, form the raw material. Schedule C, the cost recovery table and Schedule SE are completed in dependency order and returned inside 24-48h. No fee attaches to a first custom sample, and the photographer exists only on paper. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.

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AC256 Unit 7 questions, answered

Standard mileage or actual vehicle expenses?

Whichever the prompt specifies, and many AC256 problems do specify. Where it is left open, the example uses the standard mileage rate for the named year, bracketed, because the fact pattern gives miles but not fuel and repair receipts. The method chosen in the first year a vehicle is used can limit later years, which the example notes in one sentence.

Why is only 92.35 percent of the profit taxed?

It mirrors the treatment of employees, whose wages are not reduced by the employer's half of payroll taxes. Multiplying net profit by 92.35 percent removes the equivalent of that employer share before the rates apply. The example shows the step on its own line, since skipping it is one of the most frequent errors in this unit.

Should the problem take the Section 179 election or depreciate everything?

It depends on what the instructions ask. Some prompts require the election to be tested, others want MACRS throughout so the recovery tables get practiced. The example elects on part of the cost to show both methods. The deduction is also capped at taxable income from active trades or businesses, a ceiling worth checking whenever the profit is small.

Where can I find a free AC256 Unit 7 sample paper?

This page holds a complete AC256 Unit 7 business income problem for a drone photographer, with Schedule C, a cost recovery table, Schedule SE and the qualified business income deduction.

Why is the qualified business income deduction capped in the AC256 Unit 7 sample?

Twenty percent of qualified business income would be $9,164, but the deduction cannot exceed 20 percent of taxable income before it. With taxable income of $30,072 at that point, the cap is $6,014.