Comprehensive Problem 1 - Part 1: Taxpayer information, Form 1040, Schedules 1, 2, and 3, Schedule A, and Schedule B.

Noah and Joan Arc's Tax Return

Note: This problem is divided into three parts. You will need to complete some of the forms in the other parts in order to determine the amounts to be used on Form 1040. Some of the data information will be reproduced in the other parts for convenience.

Noah and Joan Arc live with their family in Dayton, OH. Noah's Social Security number is 434-11-3311. Noah was born on February 22, 1985, and Joan was born on July 1, 1986. Both enjoy good health and eyesight. Noah owns and operates a pet store and Joan is a firefighter for the city of Dayton.

1. The Arcs have two children, a son named Shem (Social Security number 598-01-2345), born on March 21, 2013, and a daughter named Nora (Social Security number 554-33-2411), born on December 3, 2016. They received a statement from Roundup Day Care Center (located on a separate tab) regarding the cost of child care provided for Nora.

2. Joan and Noah brought a folder of tax documents (see Forms W-2 and 1098). In addition, they received a Substitute 1099 Statement from Charlotte Squab Financial Services (located on a separate tab) regarding their stock transactions for the year.

3. Noah's pet store is located at 1415 S. Patterson Blvd, Dayton, OH 45409. The name of the store is "The Arc," and its taxpayer identification number is 95-9876556. Since you handle Noah's bookkeeping, you have printed the income statement from your Quickbooks software, shown in the table below. The Arc did not claim the COVID-related provisions for the employee retention credit or sick and family leave credits but Noah did defer his self-employment taxes related to The Arc. He estimates 77.5 percent of the profits can be allocated to the period March 27, 2020 through December 31, 2020.

The Arc 95-9876556 Income Statement For the Year Ended December 31, 2020
Revenue:
	Gross Sales			$143,500.00
	Less: Sales Returns and Allowances			-
	Net Sales			$143,500.00
Cost of Goods Sold:
	Beginning Inventory	$10,250.00
	Add: Purchases	62,150.00
		$72,400.00
	Less: Ending Inventory	10,000.00
	Cost of Goods Sold			62,400.00
	Gross Profit (Loss)			$81,100.00
Expenses:
	Dues and Subscriptions	-
	Estimated Federal Tax Payments	7,500.00
	Estimated State Tax Payments	3,800.00
	Insurance	3,950.00
	Meals and Entertainment	1,400.00
	Miscellaneous	-
	Payroll Taxes	3,830.00
	Professional Fees	1,710.00
	Rent	8,420.00
	Travel	1,230.00
	Utilities	1,250.00
	Vehicle Expenses	-
	Wages	25,110.00
	Total Expenses			58,200.00
	Net Operating Income			$22,900.00

4. Detail of The Arc's meals and entertainment:

$400	Meals associated with business travel
300	Arc employee holiday party
100	Overtime meals for employees
600	Sports tickets for entertaining large customers
$1,400

5. Travel costs are business related and do not include meals.

6. Noah and Joan paid the following amounts during the year (all by check):

Political contributions	$250
Church donations (for which a written acknowledgment was received)	5,025
Real estate taxes on their home	2,400
Medical co-pays for doctor visits	700
Mortgage interest for purchase of home (See Form 1098)
Tax return preparation fees	350
Credit card interest	220
Automobile insurance premiums	600
Uniforms for Joan	125
Contribution to Noah's individual retirement account (made on April 1, 2021)	6,000

7. Noah has a long-term capital loss carryover from last year of $2,313.

8. Noah and Joan own a condo and use it as a rental property. The condo is located at 16 Oakwood Ave, Unit A, Dayton, OH 45409. Noah provides the management services for the rental including selection of tenants, maintenance, repairs, rent collection, and other services as needed. On average, Noah spends about 2 hours per week on the rental activity. It was rented for 365 days. The revenue and expenses for the year are as follows:

Rental income	$14,000
Insurance	600
Interest expense	5,700
Property taxes	1,000
Miscellaneous expenses	700

The home was acquired for $82,500 in 2004. No improvements have been made to the property.

9. The Arcs paid Ohio general sales tax of $1,076 during the year.

10. The Arcs received a $3,400 EIP in 2020.

Required: You are to prepare the Arc's federal income tax return in good form. You are not to complete an Ohio state income tax return. The following forms and schedules are required and may be found in parts 1, 2, or 3:

Part 1	Part 2	Part 3
Form 1040	Schedule C	Form 2441 (Only page 1 is required)
Schedule 1	Schedule D	Schedule E
Schedule 2	Schedule SE	Form 4562
Schedule 3	Form 8949	Schedule 8812
Schedule A	Qualified Dividends and Capital Gain Tax Worksheet	Form 8995
Schedule B		Child Tax Credit Worksheet

Additional Instructions:

• Click here to access the tax table to use for this problem.
• Neither taxpayer wants to make a contribution to the presidential election campaign.
• The taxpayers elect to use the foreign tax credit in lieu of the deduction.
• Enter all amounts as positive numbers, except for a "loss." If required, enter a "loss" as a negative number on the tax form.
• 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. On Schedule SE, use the rounded amounts in subsequent computations.
• Make realistic assumptions about any missing data that you may need.

Charlotte Squab Financial Services
123 Wall Street New York, NY 10005

Joan and Noah Arc 1265 W. Riverview Avenue Dayton, OH 45402 SSN: 456-87-5432

Date

December 31, 2020

Dividends
Payor	Box 1a Ordinary Dividends	Box 1b Qualified Dividends	Box 2a Cap Gain Distrib	Box 4 Federal Income Tax withheld	Box 7 Foreign Tax Paid	Box 11 Tax-exempt Dividends
ExxonMobil	322.00	322.00	0.00	0.00	0.00	0.00
Texas Util.	1,200.00	1,200.00	0.00	0.00	0.00	0.00
CS Growth Fund	400.00	400.00	250.00	0.00	20.00	0.00

Stock Transactions
Description	Date Acq.	Date Sold	Net Proceeds	Basis (reported to IRS)
100 shs. Blue Corp.	02/11/2010	08/15/2020	4,545.00	2,580.00
50 shs. Yellow Corp.	01/13/2020	06/05/2020	6,100.00	5,375.00
25 shs. Red Co.	10/02/2011	10/07/2020	12,200.00	1,650.00

245 N. WILKINSON STREET DAYTON, OH 45402

January 12, 2021

Joan and Noah Arc 1265 W. Riverview Avenue Dayton, OH 45402

Dear Joan and Noah,

Thank you for a great 2020 at Roundup! We appreciate your patronage during the year and hope to continue to provide excellent service for Nora in 2020. We have provided the tax information for calendar year 2020 below. Please let us know if you need any additional information.

Sincerely,

Charles F. Burgundian Executive Director, Roundup Day Care EIN 54-0983456

Date of service	Amount Paid	Child
January 1, 2020 December 31, 2020	$3,000.00	Nora Arc