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

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

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) First name		Last name	(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
		Mary Booth		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 NOL from 2014 and gambling income							21
	22	Combine the amounts in the far right column for lines 7 through 21. This is your total income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .							22