Noah and Joan Arc live with their family at 4342 Josie Jo, Santee, CA 92071. Noah’s Social Security number is 434-11-3311; Joan’s is 456-87-5432. Both are in their mid-30s and enjoy good health and eyesight. Noah owns and operates a pet store and Joan is a firefighter for the city.
1. The Arcs have two children, a son named Billie Bob (Social Security number 598-01-2345), who is 7 years old, and a daughter named Mary Sue (Social Security number 554-33-2411), who is 4 years old. The Arcs paid $3,200 to the Roundup Day Care Center to take care of Mary Sue while they worked. Because Joan is a firefighter, she was home in the afternoon to care for Billie Bob after school.
2. For the current year, Joan’s W-2 from the city fire department is located below. Noah made estimated federal income tax payments of $12,000 and estimated state income tax payments of $1,020 during the current year.
a Employee’s social security number456-87-5432OMB No. 1545-0008Safe, accurate,
FAST! UseIRS e ~ fileVisit the IRS website at
www.irs.gov/efilebEmployer identification number (EIN)
33-43829661Wages, tips, other compensation
27,600.002Federal income tax withheld
5,050.00cEmployer’s name, address, and ZIP code
Santee Fire Department
Santee, CA 920713Social security wages
27,600.004Social security tax withheld
1,711.205Medicare wages and tips
27,600.006Medicare tax withheld
400.207Social security tips
8Allocated tipsdControl number
10Dependent care benefits
eEmployee’s first name and initial
Suff.11Nonqualified plans12aSee instructions for box 12
4342 Josie Jo
Santee, CA 9207113Statutory employeeRetirement planThird-party sick pay☐☐☐12b
fEmployee’s address and ZIP code
15StateEmployer’s state ID number16State wages, tips, etc.17State income tax18Local wages, tips, etc.19Local income tax20Locality nameCA1126-8702127,600.001,240.00
Form W-2 Wage and Tax Statement2015Department of the Treasury—Internal Revenue ServiceCopy B—To Be Filed With Employee’s FEDERAL Tax Return.
This information is being furnished to the Internal Revenue Service.3. Noah’s pet store is located at 18542 Mission Road, Santee, CA 92071. The name of the store is ”The Arc,” and its taxpayer ID number is 95-9876556. The beginning inventories and ending inventories are both $10,000. The revenue and expenses for the year are as follows:
Sales revenue (merchant card sales)$ 144,300Expenses:Cost of sales$61,900Insurance780Accounting fees1,800Wages25,100Payroll taxes2,250Business meals (total)$400Utilities2,650Rental expense7,6004. Noah and Joan paid the following amounts during the year (all by check):
Political contributions$250Church donations (for which a written
acknowledgment was received)2,700Real estate taxes on their home1,350Mortgage interest for purchase of homeSee Form 1098Tax return preparation fees350Credit card interest220Automobile insurance premiums600Uniforms for Joan1255. Noah likes to invest in the stock market. His Form 1099-B showed the following information for Noah’s stock sales:
StockDate AcquiredDate SoldSales PriceCost BasisBlue Co.02/11/0508/15/15$4,500$2,400Yellow Co.01/31/1506/05/156,0005,300Red Co.10/02/0610/07/1512,2001,600The expenses of sale are included in the cost basis. Noah has a long-term capital loss carryover from last year of $2,300.
6. During the year, Noah and Joan received the following qualifying dividends:
Exxon$302Texas Utilities220Coca-ColaSee 1099-DIVAll stocks, bonds, and savings accounts were purchased or established with community property.
7. Noah and Joan own rental property (a single family residence) located at 6431 Gary Ct., San Diego, CA 92115. The revenue and expenses for the year are as follows:
Rent incomeSee 1099-MISCInsurance$575Interest expense6,870Property taxes1,000Miscellaneous expenses600Depreciation (the house was acquired in 1991)3,0008. All members of the Arc household were covered for the entire year under health care insurance through Joan’s employer.
Required: Although Noah and Joan do not believe their tax return will be unduly complicated, they do realize their limitations and come to you for assistance. You are to prepare their federal income tax return in good form, signing the return as the preparer. You are not required to complete a California state income tax return. Noah and Joan have completed a tax organizer and have also given you several IRS forms (see 1099-DIV, 1099-MISC and 1098) that they were not sure what to do with. Make realistic assumptions about any missing data (addresses, etc.) that you may need. The following forms and schedules are required:
Form 1040Schedule ESchedule ASchedule SESchedule BForm 2441Schedule CForm 8949Schedule DQualified Dividends and Capital Gain Tax Worksheet
Note: Only page 1 of Schedule E is required.
Click here to access the tax table to use for this problem.
If required, enter a “loss” as a negative number on the tax form. Do not enter deductions as negative numbers. If an amount box does not require an entry or the answer is zero, enter “0”. If required, round your answers to the nearest dollar. However, on Schedule SE, use the rounded amounts in subsequent computations