2B. 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, 2010.

Required: Complete Freddy’s federal tax return for 2010. Use Form 1040, Schedule B, Schedule C, Form 8829, and Schedule M on pages 4-59 to 4-66, 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.

The following additional information is available for the Dr. Ivan and Irene Incisor family from Chapters 1–3.
On September 1, Irene opened a retail store that specializes in sports car accessories.
The name of the store is ‘‘Plus Two Cones.’’ The store is located at 617 Main Street, Spokane, WA. The store uses the cash method of accounting. Her income and expenses for the year are as follows:
Sales of merchandise $62,300 Inventory, September 1 (purchased in August) 62,500 Inventory, December 31 58,700 Purchases during the year 35,300 Sales returns and allowances 525 Store rental 7,500 Office expense 1,400 Insurance 1,000 Advertising 3,000 Employee wages 3,350 Payroll and other business taxes 505 Interest on bank loan to open store 2,740 Accounting fees 300 Utilities 1,000 Telephone 800 Maintenance 480 Miscellaneous 175 In addition to the above items, Irene incurred travel expenses to attend a seminar on sports car accessories. She spent $300 on airfare, $400 on lodging, $100 on a rental car, and $150 on meals. Irene has proper receipts for these amounts.
Irene drove her 2004 Ford Explorer 1,634 miles for business, driven after September 1, 2010, related to Plus Two Cones. The Explorer was driven a total of 17,000 business and personal miles for the year. Included in the 17,000 is 5,000 miles spent commuting to the store. Irene has the required substantiation for this businessmileage. She uses the standard mileage method.
Required: Combine this new information about the Incisor family with the information from Chapters 1–3 and complete a revised 2010 tax return for Ivan and Irene. Be sure to save your data input files since this case will be expanded with more tax information in later chapters.