Appendix B, CP B-7

Chris and Stefani Watanabe, married filing jointly, live with their two boys at 1400 Victoria Lane, Riverside, CA 92501. Chris is an accountant who has his own accounting practice. Stefani is an elementary school teacher. Their sons, Justin and Jordan, are ages 13 and 10, respectively. The following is additional information regarding the Watanabes.

Social security numbers for the Watanabe family:

Chris	412-34-5670	05/23/1980
Stefani	412-34-5671	10/14/1981
Justin	412-34-5672	02/19/2007
Jordan	412-34-5673	07/02/2010

They paid $4,500 to Friendly Hills Child Care center for after-school care for both Justin and Jordan, allocated equally. The address is 2 River Dr, Riverside, CA 92501 and their ID number is 22-1234567.

Stefanis W-2 from the Riverside school district showed the following:

Wages =	$ 56,925.04
Federal W/H =	$ 6,935.90
Social Security wages =	$ 56,925.04
Social Security W/H =	$ 3,529.35
Medicare Wages =	$ 56,925.04
Medicare W/H =	$ 825.41
California W/H =	$ 2,105.75

Chris's accounting business is located in downtown Riverside and his business code is 541211. His business had the following income and expense information (Cash basis) for the year:

Gross revenues	$ 165,000
Expenses:
Advertising	$ 2,100
Insurance	1,200
Legal fees	10,500
Office supplies	800
Rent	24,000
Travel	6,945
Meals	2,400
Utilities	2,800
Wages	34,000
Dues	650

Additionally, Chris and Stefani paid the following expenses during the year:

Medical and dental expenses	$ 4,500
Property tax (home on Victoria Lane)	3,750
State income taxes with the 2018 return	3,900
Donations to the church (cash)	3,500
Mortgage interest (home on Victoria Lane)	16,900
Stefani paid $950 in classroom expenses for her class

Chris and Stefani also earned $1,075 of interest income from California Bank during the year.

Lastly, Chris and Stefani own a three-bedroom cabin in Big Bear Lake (they bought it in January of 2008 for $300,000). The address is 3105 Stonehedge Road, Big Bear Lake, CA 92315. They did not use the property for personal use at any time during the year. The revenue and expenses for the Big Bear Lake rental property are as follows:

Rental income	$ 18,000
Expenses:
Insurance	$ 1,200
Property taxes	2,500
Auto (standard mileage)	267
Management fees	1,600
Repairs and maintenance	1,100
Mortgage interest	9,000
Depreciation	Calculate
Utilities	450

The Watanabes also made $12,000 and $9,000 in federal and California estimated income tax payments, respectively, on 06/15/20.

Required:

Prepare the Watanabes federal tax return for 2020. Use Form 1040, Schedule A, Schedule C, Schedule E, Schedule SE, and any additional schedules or forms they may need. They do not want to contribute to the presidential election campaign, and they do not want anyone to be a third-party designee. For any missing information, make reasonable assumptions. (List the names of the taxpayers and any income they receive in the order in which they appear in the problem. Input all the values as positive numbers unless otherwise stated in the forms. Instructions can be found on certain cells within the forms. Round all intermediate calculations and your final answers to the nearest whole dollar amount. Do not skip rows while entering in Dependents section of Form 1040 PG1 and Other Expenses section in Schedule C. Enter zero where applicable.)