Frederick (Freddy) Freeweights (age 42) owns and operates a health club called ''Treadmills West.'' The business is located at 4321 Arnold Street, Alpine, CA 91901. Freddy had the following income and expenses from the health club:
Income $214,900
Expenses:
Business insurance...................................................3,800
Office supplies.......................................................3,335
Payroll...............................................................97,200
Payroll taxes..........................................................9,180
Travel..................................................................2,420
Equipment & club maintenance..................................10,666
Cleaning service......................................................8,500
Equipment rent.....................................................22,820
Telephone............................................................2,780
Utilities (electric, water, gas) ....................................13,975
Rent..................................................................30,000
Advertising...........................................................4,750
Special workout clothing and boxing gloves.......................750
Subscription to Biceps Monthly magazine.........................120
Educational seminar on weight training............................775
Other expenses......................................................1,830
The business uses the cash method of accounting and has no accounts receivable or inventory held for resale.
Freddy has the following interest income for the year:
Cuyamaca Bank savings account.........................$12,831
Morgan Bank bond portfolio interest.......................10,825
Freddy has been a widower for 10 years with a dependent son, Arnold (Social Security number 276-23-3954), and he files his tax return as head-of-household. Arnold is an 18-year-old high school student; he does not qualify for the child credit. They live next door to the health club at 4323 Arnold Street. Freddy does all the administrative work for the health club out of an office in his home. The room is 150 square feet and the house has a total of 1,800 square feet. Freddy pays $20,000 per year in rent and $4,000 in utilities.
Freddy's Social Security number is 565-12-6789. He made an estimated tax payment to the IRS of $1,000 on April 15, 2012.
Required:
Complete Freddy's federal tax return for 2012. Use Form 1040, Schedule B, Schedule C, and Form 8829, on pages 3-57 to 3-63, and any other appropriate schedule(s) to complete this tax return. Do not complete a Form 4562 (depreciation). Make realistic assumptions about any missing data.