Calvin and his wife Susie live in Watterson, California which is a moderate sized town between Sacramento and Chico. They have been pretty successful in their financial lives over the years and own a number of business ventures. They have two sons, Tomas and John. Tomas (SSN 333-44-9668) was born in December 1999 and John (SSN 444-33-9988) was born a few years later in June 2005. Tomas attends school at Sac State carrying only 9 units each semester in the graduate accounting program so that he can work part time in one of his dads businesses to earn money to help pay for school. John is in high school and also works part time for his dad during the summer. Calvin and Susie are the sole owners of Wattersons only car wash. Since Watterson is in the central valley, peoples cars and trucks get very dirty all the time, so Calvin is never short on business. He is in charge of all of the big decisions, but has left the day-to-day running of the business to Tomas and to the general manager, an unrelated person named Rosy. Calvin has owned this business since he moved to Watterson in 1984. He distrusts lawyers, though he loves his accountant who gets him a refund on his federal tax return every year, so he has never taken the lawyers advice to incorporate the car wash business. Calvin figures he is just washing cars, whats the worst that could happen? In any case, Attachment 1 (all attachments are at the end of this narrative) shows the debits and credits (Rosy does all this work and then provides it to the accountant) related to the car wash business, Cals Cheery Car Cleaners (FEIN: 34-6885588). The information does NOT include Calvins decision to buy new equipment during 2021 AND 2022 to upgrade the speed of the car washing and expand to more car washing bays. Calvin likes to keep things simple, so does not believe in using the accrual method of accounting or anything to do with GAAP. As Calvin always says GAAP is crap. Attachment 2 shows all of Calvins fixed assets along with their date placed in service. Attachment 3 shows the assets Calvin disposed of during 2022 in order to replace them with the new assets purchased in 2021 (which are part of the fixed assets table). Calvin decided to borrow money from his local bank to help finance the cost of the new assets. He has never borrowed before for the car wash business. The contract to purchase all of the new bay #4 (there is no Bay #2) related equipment was signed on October 1, 2021 and the new assets placed in service in December 2021. Calvin also purchased a few more assets in 2022 as shown on Attachment #2. The car wash business was profitable in 2021 but not in 2014, 2016 or 2018 (so much for even years). Back in 1996, Calvin purchased an old house for the family to call home. However, the real estate market was not so good in Watterson and Calvin saw an opportunity. Instead of moving into the house as their primary residence, Calvin and Susie decided to rent the house and buy a larger house for themselves. The rental is in Watterson at 1212 2nd Avenue, while their main home (where they still live in 2022) is at 6663 Main Street in Watterson. Calvin has been lucky with the 2nd Avenue rental as he has only had two tenants in the entire 20+ year period and no one has ever been late with the rent. Calvin does all of the bill paying and rent collecting for this unit but uses a handyman to do any repairs and maintenance. During January 2021, Calvin saw another opportunity in real estate in his town and decided to purchase an additional rental, but this time it was a 4 unit apartment complex at 8888 15th Street (kind of outside of town, but still close enough to visit if necessary and to collect the rent). Calvin decided that with 4 tenants, he would use a property management company to take care of screening tenants, collecting the rent and making repairs. Calvin, however, gets final say on the amount of rent and whether he believes the prospective tenants are worthy of renting in his new apartment building. Calvin takes care of paying all of the bills and just gets a rent check from the property managers every other month. In 2022, Susie convinced Calvin that it would be a good idea to buy some property in the mountains. So after quite a bit of looking and discussion, Calvin and Susie settled on a condominium in Squaw Valley, CA at a price of $350,000. So they could make the monthly payments, and since they could not be there every day, they decided to use a rental company to make arrangements to have the condo rented on days when they were not going to be there. After the purchase of the condo, Calvin and Susie hired a contractor to do some re-modeling. Susie really wanted to have a much larger kitchen area and had the contractor remove one of the walls separating the kitchen and the living room. During the demolition, the contractor, who happens to be Susies brother, Darryl, found a painting hidden inside the wall. Being an honest fellow, Darryl, gave Susie the painting figuring it belonged to her now. Susie is an art teacher in high-school so knew a little bit about art and decided to have the painting appraised by the Antiques Roadshow when it would be in Sacramento. Turns out, the painting is an original Jackson Pollock worth approximately $150,000 according to Susies sister Carryl, who happens to be a professional appraiser. The remodel, costing $75,000, was finished on April 15, 2022. Following is the list of attachments related to the rental properties: Attachment 4: 2nd Avenue income and expenditures Attachment 5: 2nd Avenue Fixed Assets Attachment 6: Apartment complex details Attachment 7: Squaw Valley Details Calvin was also busy this year managing his investments. He has invested a significant amount of money with a stock broker who has full control over the trades within guidelines set by Calvin upon the initial funding of the brokerage account. There were over 1,000 total trades in the account and the form 1099-B summary below shows the information related to the brokerage account. Calvin also had several transactions that were outside of the brokerage account. He sold some stock that he had acquired by inheritance from his grandfather many years ago. The sale of 8,000 shares of Coca Cola closed on July 17, 2022 (ticker symbol KO). The Coke stock had split several times during the years, such that the 24,000 shares he owned before the sale were originally 500 shares. Calvin had no idea of his grandfathers original cost basis or of the fair value of the stock at the time of the transfer 38 years ago. The only piece of information Calvin has is that grandpa bought the stock just before he died on June 15, 1984. Calvin paid a 2% broker commission to sell the KO shares. Calvin sold some stock he received from his brother, Larry, as a birthday present in 2021. Larry has not had a good track record at picking stocks. Calvin sold the stock in two separate transactions one in April 2022 and the other in August 2022. Each time, he sold half of the shares (thus they were all sold by the time of the second transaction). At the date of the sale in August, the gross sales price of the shares Calvin received was $7,500. The April transaction resulted in gross sales price of $35,000. Having been through this before, Calvin remembered on his birthday in 2021 to ask his brother for the original cost basis of the 10,000 shares and the date of purchase. Larry was so offended by this that he has not spoken to Calvin since then. Calvin explained that the best he could get out of his brother was that Larry purchased the shares in the companys Initial Public Offering (IPO) and that he paid $5.50 per share. Further research indicates that the IPO was completed in May 2021. Calvin tracked down the fair market value of the stock on his birthday, July 31, 2021 as $3.50 per share. Calvins last big transaction for the year was his own investment in Sportswear Anonymous (SA). Calvin purchased several hundred shares in September 2021 with a total cost of $75,000. Then in February 2022, SA announced it was going into bankruptcy to reorganize its debts. But then in May 2022, they announced they would be selling everything by the end of August 2022 and ceasing business activities. Here is the summary of Calvins broker account gains and losses. None of the other transactions discussed are included in these numbers. Sales Price Broker Fees Basis Short-term gains 475,750 4,758 223,500 Long-term gains 945,500 9,455 445,800 Short-term losses 156,500 1,565 427,550 Long-term losses 221,000 2,210 594,375 But thats not all that Calvin and Susie have going on in their lives. During 2022, Susies uncle Joe Howard (SSN: 444-55-9987) came to live with them because he lost his job and his house and had nowhere else to go. Joe came to live with them in April 2022 and stayed in their basement for the rest of the year, not going out anywhere. Susie felt so bad for Joe that she allowed him to stay and paid for all of his food, internet use and other essentials. Joe was not married during 2022. Joes only income during 2022 was social security income of $12,000. Susie is a substitute high-school teacher and worked on and off during the school year. Her form W-2 is attached for 2022. As most teachers do, Susie spent a fair amount of money on classroom supplies, totaling $875 for the year. See Attachment 8. Because Susie is a substitute, she is not eligible for medical, dental and vision benefits, though she does have to pay union dues totaling $1,200 for the year. Calvin buys health insurance to cover his family, including (reluctantly) Uncle Joe, and pays monthly premiums for a high quality plan of $1,250. Calvins brother, Alvin, borrowed some money from Calvin back in 2019 to buy his first house. Calvin set it up so that the transaction is considered a loan, with an interest rate of 9% annually (simple interest). The loan balance is $200,000 and during 2022 Alvin made no principle or interest payments on the loan. The loan is secured by Alvins house and the loan is recorded as a lien at the county office. Calvin received interest and dividend income during the year as shown in the following table: Source Interest Qualifying dividends Non-qualifying div. Checking account $2,050 Savings account $8,300 Investment acct #1 $2,250 $19,000 $5,000 Investment acct #2 $7,000 $6,500 California bonds $8,500 Arizona bonds $10,700 US Treasury bonds $13,500 Canadian bonds $3,000 Susie likes to occasionally go to the local Indian casino to gamble and see a show. During 2022, she spent about (she really has no idea other than her ATM receipts on her gambling days) $15,500. She did receive a form W-2G from the casino showing she had won $4,700 on slot machines and another $2,200 on table games. No withholdings were shown on the W-2G form. See Attachments 9 and 10. Back in 1996, Calvin and Susie purchased their first (and current) home. They paid $450,000 for the home and borrowed 80% of the purchase price from the local bank at 6% annual interest. Over the last 20+ years, they have managed to pay down the principle balance to $325,000. Because interest rates are so low in 2022, Calvin decided to refinance the mortgage on the house and pull out some additional equity cash to remodel the house and also pay for some non-house related expenditures. The local bank agreed to refi the house for 80% of its current value of $950,000 at an interest rate of 2% (simple) for 30 years. The refinance was completed on July 1, 2022. The refinance required that Calvin pay a 1.25% loan initiation fee to the bank upon closing the refinanced loan. The points are NOT included in the interest paid on the form 1098. The bank sent Calvin and Susie a form 1098 (Attachment 11) showing the following: Principle balance at beginning of year $325,000 Principle balance at end of year $760,000 Interest paid during 2018 $16,750 Property taxes paid during 2018 $6,722 Susie kept careful track of where all the loan money went and provided the following summary: Refinance of original mortgage $325,000 Points paid on the refi $9,500 Proceeds for remodeling $128,500 Proceeds used for purchase Ferrari $175,000 Money used for car wash asset purchases $122,000 Calvin thought it would be a good idea to also pay his 2023 property taxes in December to get the deduction, so he drove down to the County assessors office and paid another $6,857 on December 31, 2022. Calvin paid personal property taxes for the following items during 2022: Boat $375 Ford F150 $425 Lexus $500 Corolla $175 Honda $225 Ferrari $975 In addition to being a high-school art teacher, Susie is very involved in the Watterson charitable community. She decided that 2022 would be the year that she and Calvin would make a large positive impact on the charitable community of Watterson. To accomplish that, she decided to donate the painting that was found in their condo in Squaw Valley to the local high-school auction to raise money for arts and music. The painting was ultimately sold in an online auction on November 30, 2022 (no one in Watterson can actually afford it) for $250,000. Further, she convinced Calvin that they should donate some of their stock holdings to their alma mater, Chico State University. They decided to donate the leftover Coca Cola shares (the remaining 16,000 shares) on November 21, 2022. Susie also cleaned out the garage during the year and gave away a bunch of Calvins old records, baseball cards and comic books. She estimated the value of all the junk to be about $100 total. Calvin, on the other hand, thinks that all of his stuff was worth at least $2,000. The two also decided to contribute $1,000 to the Gavin Newsome for President Campaign and $1,000 to the Antonio Villaraigosa for Mayor Campaign and $500 to the John Cox Campaign (no sense wasting money on Republicans in California). They also made cash contributions of the following amounts: Weekly donation to church $50 Monthly donation to Goodwill $100 Boy Scouts $500 Girl Scouts $500 In December, Susie also decided that Calvin needed a new car and donated his old car (the Corolla) to Kars for Kids. She looked it up in the Kelly Bluebook online and found that the estimated worth of the Corolla was $2,000. Kars for Kids sent her a letter in February 2023 noting that they had sold the Corolla for a total of $750. Calvin originally purchased the car for $15,000. The VIN for the Corolla was 12345677890000 During 2022, Calvins accountant had him make federal and state estimated tax payments of the following: Payment Date Federal California April 15, 2022 25,000 0 June 15, 2022 25,000 9,000 September 15, 2022 25,000 9,000 December 31, 2022 9,000 January 15, 2023 25,000 Remember that Calvin loves his accountant because Calvin gets a refund every year. The state tax refund received during 2022 for the 2021 taxes was $9,875 and Calvin and Susie itemized their deductions in 2021. They elected on their 2021 state return to have all of their state overpayment applied to their 2022 taxes. Because they have a large brokerage account (see above), Calvin and Susie also pay large investment advisor fees. During 2022, they paid $100,000 of investment advisor fees. They also pay their accountant well, and paid total fees to the accountant during 2022 for prior year (2021) tax returns, general tax consulting, and estimated tax calculations of $25,000. Calvin had the accountant break down the fees related to each activity for 2021 as follows: $4,000 car wash; $5,000 rentals, $6,000 gains and losses; and miscellaneous for the rest.

CALVIN & SUSIE HOBBES CAR WASH INCOME STATEMENT ATTACHMENT 1 FY 22 Item Debit (cash out) Credit (cash in) Gross Sales $6,250,000 Wages $1,250,000 Social Security and Medicare $95,625 Unemployment insurance $3,500 Casualty insurance $25,000 Drying Rags and car cleaning supplies $75,000 Water bills $2,500,000 Soap $125,000 Car accessories $55,000 Electrical expense $978,000 City utilities $140,000 Advertising $5,000 Interest bank loan $40,000 Interest Calvin loan $1,220 Various other supplies $25,000 Gas and car maintenance $12,000 Office supplies $10,000 Repairs $5,000 New client meals $8,000 Old client meals $16,000 Entertainment $9,000 Business license $2,000 Replacement parts $45,000 Cell phone bills $2,400

CAR WASH FIXED ASSETS FY 22 ATTACHMENT 2 DATE PLACED ITEM IN SERVICE COST BUILDING 6/1/1992 1,000,000 BRUSH MACHINE BAY #1 6/30/2016 90,000 ROLLER MACHINE BAY #1 6/30/2016 66,000 CASH REGISTER 9/25/2016 2,500 INSIDE COUNTERS 7/31/2018 3,500 LAND 6/1/1992 240,000 VACUUMS BAY #1 6/30/2016 30,000 DRYING MACHINES BAY #1 6/30/2016 96,000 WATER SYSTEM BAY #1 6/30/2016 54,000 SOAP MACHINE BAY #1 6/30/2016 27,000 COMPUTER SYSTEM 9/15/2021 100,000 NEW BRUSH MACHINE BAY #1 9/15/2021 135,000 NEW ROLLER MACHINE BAY #1 9/15/2021 108,000 NEW VACCUMS BAY #1 9/15/2021 45,000 NEW DRYING MACHINES BAY #1 9/15/2021 138,000 NEW WATER SYSTEM BAY #1 9/15/2021 93,000 NEW SOAP MACHINE BAY #1 9/15/2021 36,000 BRUSH MACHINE BAY #3 9/15/2021 135,000 ROLLER MACHINE BAY #3 9/15/2021 108,000 VACCUMS BAY #3 9/15/2021 45,000 DRYING MACHINES BAY #3 9/15/2021 138,000 WATER SYSTEM BAY #3 9/15/2021 93,000 SOAP MACHINE BAY #3 9/15/2021 36,000 BRUSH MACHINE BAY #4 12/15/2021 135,000 ROLLER MACHINE BAY #4 12/15/2021 108,000 VACCUMS BAY #4 12/15/2021 45,000 DRYING MACHINES BAY #4 12/15/2021 138,000 WATER SYSTEM BAY #4 12/15/2021 93,000 SOAP MACHINE BAY #4 12/15/2021 36,000 SOFTWARE SYSTEM 3/15/2022 40,000 CONVEYER BELTS 6/30/2022 125,000

CAR WASH FIXED ASSETS DISPOSED FY 22 ATTACHMENT 3 DATE PLACED DATE CASH ITEM IN SERVICE COST DISPOSED PROCEEDS BRUSH MACHINE BAY #1 6/30/2016 90,000 1/2/2022 3,000 ROLLER MACHINE BAY #1 6/30/2016 66,000 1/2/2022 2,500 VACUUMS BAY #1 6/30/2016 30,000 1/2/2022 1,000 DRYING MACHINES BAY #1 6/30/2016 96,000 1/2/2022 4,000 WATER SYSTEM BAY #1 6/30/2016 54,000 1/2/2022 5,200 SOAP MACHINE BAY #1 6/30/2016 27,000 1/2/2022 3,200 CAR WASH FIXED ASSETS DISPOSED FY 22 ATTACHMENT 3 DATE PLACED DATE CASH ITEM IN SERVICE COST DISPOSED PROCEEDS BRUSH MACHINE BAY #1 6/30/2016 90,000 1/2/2022 3,000 ROLLER MACHINE BAY #1 6/30/2016 66,000 1/2/2022 2,500 VACUUMS BAY #1 6/30/2016 30,000 1/2/2022 1,000 DRYING MACHINES BAY #1 6/30/2016 96,000 1/2/2022 4,000 WATER SYSTEM BAY #1 6/30/2016 54,000 1/2/2022 5,200 SOAP MACHINE BAY #1 6/30/2016 27,000 1/2/2022 3,200

CALVIN & SUSIE HOBBES 2nd AVENUE INFORMATION FY 22 ATTACHMENT 4 DAYS RENTED 365 PERSONAL USE DAYS MONTHLY RENT 3,500 EXPENDITURES FOR 2022: REPAIRS 2,000 CASUALTY INSURANCE 2,500 MORTGAGE INTEREST 6,500 PROPERTY TAXES 5,500 ADVERTISING 200 GARDENER 1,200 GARBAGE UTILITY 720 SEWER AND WATER UTILITY 660

CALVIN HOBBES 2ND AVENUE FIXED ASSETS ATTACHMENT 5 FY 22 HOUSE LAND NEW ROOF CARPET COUNTERTOPS APPLIANCES FENCING PURCHASE PRICE 300,000 60,000 25,000 12,000 9,000 8,000 4,000 PURCHASE DATE 7/1/1996 7/1/1996 10/1/2010 8/15/2021 8/15/2021 8/15/2021 3/1/2004

CALVIN & SUSIE HOBBES APARTMENT COMPLEX INFORMATION FY 22 ATTACHMENT 6 PURCHASE DATE 2/1/2021 PURCHASE AMOUNT BUILDING 400,000 PURCHASE AMOUNT LAND 50,000 MONTHS RENTED 12 PERSONAL USE DAYS MONTHLY RENT 4,200 EXPENDITURES FOR 2022: REPAIRS 3,000 MANAGEMENT FEES 8,600 CASUALTY INSURANCE MORTGAGE INTEREST 18,000 PROPERTY TAXES 5,000 ADVERTISING 1,000 GARDENER 1,600 GARBAGE UTILITY 3,200 SEWER AND WATER UTILITY 4,500

CALVIN & SUSIE HOBBES SQUAW VALLEY PROPERTY INFORMATION FY 22 ATTACHMENT 7 PURCHASE DATE 2/15/2022 PURCHASE PRICE 350,000 REMODEL COST 75,000 DAYS RENTED 150 PERSONAL USE DAYS 19 DAILY RENT 200 EXPENDITURES FOR 2022: MANAGEMENT FEES 4,000 REPAIRS 2,500 REMODELING 75,000 CLEANING FEES 1,000 ADVERTISING 975 ELECTRIC COSTS 1,000 OTHER UTILITY COST 3,600 PROPERTY INSURANCE 2,800 MORTGAGE INTEREST 7,500 HOMEOWNERS ASSOCIATION DUES 1,500 PROPERTY TAXES 3,800 SUPPLIES 400

1. Before depreciation expense, what is taxable income for 2022?

Group of answer choices

a. 839,255

b. 822,735

c. 801,735

d. 818,255

2. Depreciation expense for 2022 is:

Group of answer choices

a. 8,372

b. 165,000

c. 0

d. 173,372

3. The amount of section 179 expense taken in 2021 was:

Group of answer choices

a. 0

b. 510,000

c. 1,765,000

d. 225,000

4. Bonus depreciation under section 168(k) taken in 2021 was:

Group of answer choices

a. 1,781,457

b. 510,000

c. 1,255,000

d. 16,457

5. MACRS depreciation taken for 2022 is:

Group of answer choices

a. 8,372

b. 0

c. 173,372

d. 165,000

6. Taxable income for 2022 including depreciation expense is:

Group of answer choices

a. 818,255

b. 839,255

c. 644,883

d. 665,883

Please explain all of the questions

Form W-2 Wage and Tax statement 2022 Do Not Cut, Fold, or Staple Forms on This Page Attachment 8 Under penaltios of perjury, I dedare that, to the best of my knowibdge and belist, the name, address, and taxpayer idsnification number that I have fumbahed corroctly identily me as the rocipiont of this payment and any payments trom idchfosl wagers, and that no other person is entitibd to any part of these payments. Attachment 9 I VOID CORRECTED Under penaltes of perjary, I declse that, to the best of my knowledpe and belks, the name, address, and taxpayer ldentilication number that I have fumished oorrectly ident.ry me as the rocipient of this payment and any payments from identical wagers, and that no other person is entitlod to any part of these payments. Signature Date Form W-2G Cat. No. 10138v wwwirs.gowiw2 p Department of the Treasury - Intemal Fevenue Servioe Do Not Cut or Separate Forms on This Page - Do Not Cut or Separate Forms on This Page Attachment 10 CORRECTED (if checked) Form W-2 Wage and Tax statement 2022 Do Not Cut, Fold, or Staple Forms on This Page Attachment 8 Under penaltios of perjury, I dedare that, to the best of my knowibdge and belist, the name, address, and taxpayer idsnification number that I have fumbahed corroctly identily me as the rocipiont of this payment and any payments trom idchfosl wagers, and that no other person is entitibd to any part of these payments. Attachment 9 I VOID CORRECTED Under penaltes of perjary, I declse that, to the best of my knowledpe and belks, the name, address, and taxpayer ldentilication number that I have fumished oorrectly ident.ry me as the rocipient of this payment and any payments from identical wagers, and that no other person is entitlod to any part of these payments. Signature Date Form W-2G Cat. No. 10138v wwwirs.gowiw2 p Department of the Treasury - Intemal Fevenue Servioe Do Not Cut or Separate Forms on This Page - Do Not Cut or Separate Forms on This Page Attachment 10 CORRECTED (if checked)