Comprehensive Problem 3-1

Ken (age 31) and Amy (age 28) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of these items must be used to calculate taxable income.

Income:
Ken's salary (salesman)	$28,100
Amy's wages (part-time nurse)	17,900
Insurance reimbursement for repairs from an auto accident	500
Gift from Uncle George	2,000
Interest income from Lodge State Bank	674
Federal income taxes withheld:
From Ken's salary	2,200
From Amy's wages	650

Amy owns and operates a computer bookstore named "The Disk Drive." The store is located at 2000 Broadway Street, Menomonie, WI 54751. During 2015, Amy had the following income and expenses:

Sales of books	$319,240
Expenses
Store rental	15,900
Office expense	6,000
Advertising	11,900
City business license	1,000
Payroll	84,550
Payroll taxes	8,468
Utilities	8,000
Other	3,000
Inventory
January 1	250,000
December 31	232,000
Purchases during the year	165,000

The previous year was Amy's first year of operating the bookstore. Amy and Ken elected to carry forward a $4,752 net operating loss from the first year of business into 2015. (Note: Net operating losses are reported on the "Other Income" line of Form 1040.)

This year, Amy loaned a friend $20,000 so that he could make an investment. Instead of making the investment, the friend lost all the money gambling and left for parts unknown. Amy has no hope of ever collecting on this bad debt.

Ken, who ordinarily never gambles, won $25,000 at a casino birthday party for one of his friends. This amount should be reported on the "Other Income" line of Form 1040.

The Booths support Ken's parents, Rod (Social Security number 124-80-9050) and Mary (Social Security number 489-37-6676) Booth, who live in their own home. Ken and Amy live at 2345 Wilson Avenue, Menomonie, WI, 54751, and their Social Security numbers are 343-75-3456 (Ken) and 123-45-7890 (Amy).

Click here to access the tax table to use for this problem.

You may ignore any related self-employment taxes.

Required:

Complete the Booth's federal income tax return for 2015. Use Form 1040, Schedule C, Schedule D, and Form 8949. A statement is required to be attached to a return for a nonbusiness bad debt, but this requirement may be ignored for this problem. Assume no 1099-B is filed in association with the bad debt when filling out Schedule D.

Note: If an amount box does not require an entry or the answer is zero, enter "0". If required, enter a "loss" as a negative number on the tax form. However, do not enter deductions or other items as negative numbers.

Hint: You may need to complete the other forms before completing the Form 1040.

Form 1040

Department of the TreasuryInternal Revenue Service (99) U.S. Individual Income Tax Return

2015

OMB No. 1545-0074

IRS Use Only

Foreign country name Foreign province/state/country Foreign postal code

For the year Jan. 1Dec. 31, 2015, or other tax year beginning	, 2015, ending , 20	See separate instructions.
Your first name and initial Ken	Last name Booth	Your social security number 343-75-3456
If a joint return, spouse's first name and initial Amy	Last name Booth	Spouse's social security number 123-45-7890
Home address (number and street). If you have a P.O. box, see instructions. 2345 Wilson Avenue	Apt. no.	Make sure the SSN(s) above and on line 6c are correct.
City, town or post office, state, and ZIP code. If you have a foreign address, also complete spaces below (see instructions). Menomonie, WI 54751	Presidential Election Campaign Check here if you, or your spouse if filing jointly, want $3 to go to this fund. Checking a box below will not change your tax or refund. You Spouse

Filing Status

Married filing jointly (even if only one had income)

_______ _______

Exemptions	6a	Yes	Yourself. If someone can claim you as a dependent, do not check box 6a . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	}	Boxes checked on 6a and 6b No. of children on 6c who: lived with you did not live with you due to divorce or separation (see instructions) Dependents on 6c not entered above Add numbers on lines above
b	Yes	Spouse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
	c	Dependents:			(4) If child under age 17 qualifying for child tax credit (see instructions)
	(1)Firstname	Lastname	(2) Dependent's social security number	(3) Dependent's relationship to you
If more than four dependents, see instructions and check here		Rod Booth		124-80-9050	Father
	MaryBooth		489-37-6676	Mother
d	Total number of exemptions claimed . . . . . . . . . . . . . . . . . . . .

Income Attach Form(s) W-2 here. Also attach Forms W-2G and 1099-R if tax was withheld. If you did not get a W-2, see instructions.	7	Wages, salaries, tips, etc. Attach Form(s) W-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
8a	Taxable interest. Attach Schedule B if required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8a
b	Tax-exempt interest. Do not include on line 8a . . . . . . . . .	8b
9a	Ordinary dividends. Attach Schedule B if required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9a
b	Qualified dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9b
10	Taxable refunds, credits, or offsets of state and local income taxes . . . . . . . . . . . . . . . .	10
11	Alimony received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
12	Business income or (loss). Attach Schedule C or C-EZ . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
13	Capital gain or (loss). Attach Schedule D if required. If not required, check here	13
14	Other gains or (losses). Attach Form 4797 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
15a	IRA distributions . . . . . . . . . . .	15a			b Taxable amount . . .	15b
16a	Pensions and annuities . . . . . .	16a			b Taxable amount . . .	16b
17	Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E	17
18	Farm income or (loss). Attach Schedule F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
19	Unemployment compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
20a	Social security benefits	20a			b Taxable amount . . .	20b
21	Other income. List type and amount	21
22	Combine the amounts in the far right column for lines 7 through 21. This is your total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Adjusted Gross Income	23	Educator expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
24	Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 or 2106-EZ . .	24
25	Health savings account deduction. Attach Form 8889 . . . . .	25
26	Moving expenses. Attach Form 3903 . . . . . . . . . . . . . . . . . .	26
27	Deductible part of self-employment tax. Attach Schedule SE	27
28	Self-employed SEP, SIMPLE, and qualified plans . . . . . . . . .	28
29	Self-employed health insurance deduction . . . . . . . . . . . . .	29
30	Penalty on early withdrawal of savings . . . . . . . . . . . . . . . .	30
31a	Alimony paid b Recipient's SSN	31a
32	IRA deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
33	Student loan interest deduction . . . . . . . . . . . . . . . . . . . . .	33
34	Tuition and fees. Attach Form 8917 . . . . . . . . . . . . . . . . . . . . . .	34
35	Domestic production activities deduction. Attach Form 8903	35
36	Add lines 23 through 35 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
37	Subtract line 36 from line 22. This is your adjusted gross income . . . . . . . . . . . . . .		37

For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 11320B

Form 1040 (2015)

Form 1040 (2015)

Ken & Amy Booth

343-75-3456

Page 2

38

Amount from line 37 (adjusted gross income)

38

Tax and Credits

39a

Check if:

{

You were born before January 2, 1951, Blind. Spouse was born before January 2, 1951, Blind.

}

Total boxes checked 39a

b

If your spouse itemizes on a separate return or you were a dual-status alien, check here 39b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Standard Deduction for

People who check any box on line 39a or 39b or who can be claimed as a dependent, see instructions.

All others:

Single or Married filing separately, $6,300

Married filing jointly or Qualifying widow(er), $12,600

Head of household, $9,250

40

Itemized deductions (from Schedule A) or your standard deduction (see left margin)

40

41

Subtract line 40 from line 38 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

41

42

Exemptions. If line 38 is $154,950 or less, multiply $4,000 by the number on line 6d. Otherwise, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

42

43

Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter -0- .

43

44

Tax (see instructions). Check if any from: a Form(s) 8814 b Form 4972 c

44

45

Alternative minimum tax (see instructions). Attach Form 6251 . . . . . . . . . . . . . . . .

45

46

Excess advance premium tax credit repayment. Attach Form 8962 . . . . . . . . . . . . . .

46

47

Add lines 44, 45, and 46 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

47

48

Foreign tax credit. Attach Form 1116 if required . . . . . . . . . . . .

48

49

Credit for child and dependent care expenses. Attach Form 2441

49

50

Education credits from Form 8863, line 19 . . . . . . . . . . . . . . . .

50

51

Retirement savings contributions credit. Attach Form 8880 . . .

51

52

Child tax credit. Attach Schedule 8812, if required . . . . . . . . . .

52

53

Residential energy credit. Attach Form 5695 . . . . . . . . . . . . . .

53

54

Other credits from Form: a 3800 b 8801 c

54

55

Add lines 48 through 54. These are your total credits . . . . . . . . . . . . . . . . . . . . . . . . . . .

55

56

Subtract line 55 from line 47. If line 55 is more than line 47, enter -0- . . . . . . . . . .

56

Other Taxes

57

Self-employment tax. Attach Schedule SE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

57

58

Unreported social security and Medicare tax from Form: a 4137 b 8919 . . .

58

59

Additional tax on IRAs, other qualified retirement plans, etc. Attach Form 5329 if required

59

60a

Household employment taxes from Schedule H . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60a

b

First-time homebuyer credit repayment. Attach Form 5405 if required . . . . . . . . . . . . .

60b

61

Health care: individual responsibility (see instructions)

Full-year coverage

61

62

Taxes from: a Form 8959 b Form 8960 c Instructions; enter code(s) _ _ _ _ _

62

63

Add lines 56 through 62. This is your total tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

63

Payments

64

Federal income tax withheld from Forms W-2 and 1099 . . . . . . . . .

64

If you have a qualifying child, attach Schedule EIC.

65

2015 estimated tax payments and amount applied from 2014 return

65

66a

Earned income credit (EIC) . . . . . . . . . . . . . . . . . . . . . . . . . . .

66a

b

Nontaxable combat pay election . . . . . .

66b

67

Additional child tax credit. Attach Schedule 8812 . . . . . . . . . . . . . .

67

68

American opportunity credit from Form 8863, line 8 . . . . . . . . . . . .

68

69

Net premium tax credit. Attach Form 8962 . . . . . . . . . . . . . . . . . .

69

70

Amount paid with request for extension to file . . . . . . . . . . . . . . . .

70

71

Excess social security and tier 1 RRTA tax withheld . . . . . . . . . . . .

71

72

Credit for federal tax on fuels. Attach Form 4136 . . . . . . . . . . . . . .

72

73

Credits from Form: a 2439 b Reserved c 8885 d

73

74

Add lines 64, 65, 66a, and 67 through 73. These are your total payments . . . . . . . . . .

74

Refund

75

If line 74 is more than line 63, subtract line 63 from line 74. This is the amount you overpaid

75

76a

Amount of line 75 you want refunded to you. If Form 8888 is attached, check here .

76a

Direct deposit? See instructions.

b

Routing number

c Type: Checking Savings

d

Account number

77

Amount of line 75 you want applied to your 2016 estimated tax

77

Amount You Owe

78

Amount you owe. Subtract line 74 from line 63. For details on how to pay, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

78

79

Estimated tax penalty (see instructions) . . . . . . . . . . . . . . . . . . . .

79

Third Party Designee

Do you want to allow another person to discuss this return with the IRS (see instructions)? Yes. Complete below. No

Designee's name

Phone no.

Personal identification number (PIN)

Date Daytime phone number

Sign Here Joint return? See instructions. Keep a copy for your records.

Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

Your signature Ken Booth

Your occupation Salesperson

Spouse's signature. If a joint return, both must sign. Amy Booth

Date

Spouse's occupation Book Store Owner/Nurse

If the IRS sent you an Identity Protection PIN, enter it here (see inst.)

Paid Preparer Use Only		Print/Type preparer's name	Preparer's signature	Date	Check if self-employed	PTIN
Firm's name	Firm's EIN
Firm's address	Phone no.
www.irs.gov/form1040	Form 1040 (2015)

SCHEDULE C (Form 1040) Department of the Treasury Internal Revenue Service (99)	Profit or Loss From Business (Sole Proprietorship) Information about Schedule C and its separate instructions is at www.irs.gov/schedulec. Attach to Form 1040, 1040NR, or 1041; partnerships generally must file Form 1065.	OMB No. 1545-0074
2015 Attachment Sequence No. 09

Name of proprietor Amy Booth	Social security number (SSN) 123-45-7890
A	Principal business or profession, including product or service (see instructions) Computer Bookstore	B Enter code from instructions 451211
C	Business name. If no separate business name, leave blank. The Disk Drive	D Employer ID number (EIN), (see instr.) 999-99-9999
E	Business address (including suite or room no.)	2000 Broadway Street.
	City, town or post office, state, and ZIP code	Menomonie, WI 54751

F	Accounting method:(1) Cash(2) Accrual(3) Other (specify) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
G	Did you "materially participate" in the operation of this business during 2015? If "No," see instructions for limit on losses		Yes	No
H	If you started or acquired this business during 2015, check here . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I	Did you make any payments in 2015 that would require you to file Form(s) 1099? (see instructions) . . . . . . . . . .	Yes	No
J	If "Yes," did you or will you file required Forms 1099? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Yes	No

Part I

Income

1	Gross receipts or sales. See instructions for line 1 and check the box if this income was reported to you on Form W-2 and the "Statutory employee" box on that form was checked . . . . . . . . . . . . . . .		1
2	Returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
3	Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
4	Cost of goods sold (from line 42) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
5	Gross profit. Subtract line 4 from line 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
6	Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) . . . . . . .	6
7	Gross income. Add lines 5 and 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		7

Part II

Expenses. Enter expenses for business use of your home only on line 30.

8

Advertising . . . . . . . . . . . . . . . .

8

18

Office expense (see instructions) . . . .

18

9

Car and truck expenses (see

19

Pension and profit-sharing plans . . . .

19

instructions) . . . . . . . . . . . . . . .

9

20

Rent or lease (see instructions): . . . . .

10

Commissions and fees . . . . . . .

10

a

Vehicles, machinery, and equipment

20a

11

Contract labor (see instructions)

11

b

Other business property . . . . . . . . . . .

20b

12

Depletion . . . . . . . . . . . . . . . . .

12

21

Repairs and maintenance . . . . . . . . .

21

13

Depreciation and section 179

22

Supplies (not included in Part III) . . .

22

expense deduction (not included

23

Taxes and licenses . . . . . . . . . . . . . . .

23

in Part III) (see instructions) . . .

13

24

Travel, meals, and entertainment: . . .

14

Employee benefit programs

a

Travel . . . . . . . . . . . . . . . . . . . . . . . .

24a

(other than on line 19) . . . . . . .

14

b

Deductible meals and

15

Insurance (other than health) . .

15

entertainment (see instructions) . . . .

24b

16

Interest: . . . . . . . . . . . . . . . . . .

25

Utilities . . . . . . . . . . . . . . . . . . . . . . .

25

a

Mortgage (paid to banks, etc.) . .

16a

26

Wages (less employment credits) . . . .

26

b

Other . . . . . . . . . . . . . . . . . . . .

16b

27a

Other expenses (from line 48) . . . . .

27a

17

Legal and professional services

17

b

Reserved for future use . . . . . . . . . .

27b

28

Total expenses before expenses for business use of home. Add lines 8 through 27a . . . . . . . . . . . . . .

28

29

Tentative profit or (loss). Subtract line 28 from line 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

29

30

Expenses for business use of your home. Do not report these expenses elsewhere. Attach Form 8829 unless using the simplified method (see instructions). Simplified method filers only: enter the total square footage of: (a) your home: and (b) the part of your home used for business: . Use the Simplified Method Worksheet in the instructions to figure the amount to enter on line 30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30

31

Net profit or (loss). Subtract line 30 from line 29. If a profit, enter on both Form 1040, line 12 (or Form 1040NR, line 13) and on Schedule SE, line 2.
(If you checked the box on line 1, see instructions). Estates and trusts, enter on Form 1041, line 3.	}
If a loss, you must go to line 32.

31

32	If you have a loss, check the box that describes your investment in this activity (see instructions).	}
	If you checked 32a, enter the loss on both Form 1040, line 12, (or Form 1040NR, line 13) and on Schedule SE, line 2. (If you checked the box on line 1, see the line 31 instructions). Estates and trusts, enter on Form 1041, line 3. If you checked 32b, you must attach Form 6198. Your loss may be limited.	32a 32b	All investment is at risk. Some investment is not at risk.

For Paperwork Reduction Act Notice, see the separate instructions.

Cat. No. 11334P

Schedule C (Form 1040) 2015