Comprehensive Problem 3-1 Ken (birthdate July 1, 1988) and Amy (birthdate July 4, 1990) 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: $28,500 Ken's salary (salesman) Amy's wages (part-time nurse) Insurance reimbursement for repairs from an auto accident 17,500 500 Gift from Uncle George 2,000 840 Interest income from Lodge State Bank Federal income taxes withheld: From Ken's salary 2,600 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 2019, Amy had the following income and expenses: Sales of books $321,000 Expenses Store rental 16,000 Office expense 6,000 Advertising 11,700 City business license 1,020 Payroll 83,550 Payroll taxes 8,400 Utilities 8,050 Other 3,000 Other 3,000 Cost of inventory sold 185,000 Amy treats inventory as non-incidental materials and supplies. This year, Amy loaned a friend $10,000 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 $20,000 at a casino birthday party for one of his friends. The Booths provide the sole support for 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). Ken and Amy can claim a $500 other dependent credit for each parent. Required: Complete the Booth's Form 1040 and the related schedules and forms provided. Assume the taxpayers had full-year health coverage and neither taxpayer wants to contribute to the presidential election campaign. A statement is required to be attached to a return for a nonbusiness bad debt, but this requirement may be ignored for this problem. You may ignore any related self-employment taxes. Assume no 1099-B is filed in association with the bad debt when filling out Form 8949. You may need to complete the other forms before completing the Form 1040. If an amount box does not require an entry or the answer is zero, enter "0". If required, round amounts to the nearest dollar. Enter all amounts as positive numbers. However, if required, use the minus sign to enter a "loss". Schedule C Complete Amy Booth's Schedule C. OMB No. 1545-0074 SCHEDULE C (Form 1040 or 1040-SR) 2019 Profit or Loss From Business (Sole Proprietorship) Go to www.irs.gov/Schedule for instructions and the latest information. Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships generally must file Form 1065. Department of the Treasury Internal Revenue Service (99) 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 Business name. If no separate business name, leave blank. The Disk Drive D Employer ID number (EIN) (see instr.) 271-23-4567 E F Business address (including suite or room no.) 2000 Broadway Street. City, town or post office, state, and ZIP code Menomonie, WI 54751 Accounting method: (1) Cash (2) Accrual (3) Other (specify) Did you "materially participate in the operation of this business during 2019? If "No," see instructions for limit on losses G x Yes No H I If you started or acquired this business during 2019, check here. Did you make any payments in 2019 that would require you to file Form(s) 1099? (see instructions) If "Yes," did you or will you file required Forms 1099?...... Yes No J Yes O 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 ............. 1 321,000 2 Returns and allowances. 2 3 Subtract line 2 from line 1 3 321,000 4 Cost of goods sold (from line 42). 4 5 Gross profit. Subtract line 4 from line 3 5 6 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) ... 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 10 Commissions and fees ...... 10 20 Rent or lease (see instructions): .... a Vehicles, machinery, and equipment b Other business property .. 20a 11 Contract labor (see instructions) 11 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 Part III) (see instructions) 13 24 Travel and meals: a Travel ... 14 Employee benefit programs 24a (other than on line 19)..... 14 b Deductible meals (see 15 Insurance (other than health) 15 instructions) 24b 16 Interest (see instructions): 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 29 Tentative profit or loss). Subtract line 28 from line 7.. 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 31 Net profit or loss). Subtract line 30 from line 29. If a profit, enter on both Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, 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 } 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 Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, 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 > All investment is at risk. 32b O Some investment is not at risk. For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11334P Schedule C (Form 1040 or 1040-SR) 2019 123-45-7890 Page 2 Schedule C (Form 1040 or 1040-SR) 2019 Amy Booth Part III Cost of Goods Sold (see instructions) 33 Method(s) used to value closing inventory: a Cost b Lower of cost or market C Other (attach explanation) 34 Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If "Yes," attach explanation .. 35 Inventory at beginning of year. If different from last year's closing inventory, attach explanation. Yes No 35 36 Purchases less cost of items withdrawn for personal use 36 37 Cost of labor. Do not include any amounts paid to yourself. 37 38 Materials and supplies 38 39 Other costs... 39 40 Add lines 35 through 39 40 41 Inventory at end of year 41 42 Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 42 Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562. 43 When did you place your vehicle in service for business purposes? (month, day, year) 44 Of the total number of miles you drove your vehicle during 2019, enter the number of miles you used your vehicle for: a Business b Commuting (see instructions) C Other Yes O No 45 Was your vehicle available for personal use during off-duty hours? 46 Do you (or your spouse) have another vehicle available for personal use? 47a Do you have evidence to support your deduction?.. Yes No Yes b If "Yes," is the evidence written? 0 Yes O No Part V Other Expenses. List below business expenses not included on lines 8-26 or line 30. Other Comprehensive Problem 3-1 Ken (birthdate July 1, 1988) and Amy (birthdate July 4, 1990) 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: $28,500 Ken's salary (salesman) Amy's wages (part-time nurse) Insurance reimbursement for repairs from an auto accident 17,500 500 Gift from Uncle George 2,000 840 Interest income from Lodge State Bank Federal income taxes withheld: From Ken's salary 2,600 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 2019, Amy had the following income and expenses: Sales of books $321,000 Expenses Store rental 16,000 Office expense 6,000 Advertising 11,700 City business license 1,020 Payroll 83,550 Payroll taxes 8,400 Utilities 8,050 Other 3,000 Other 3,000 Cost of inventory sold 185,000 Amy treats inventory as non-incidental materials and supplies. This year, Amy loaned a friend $10,000 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 $20,000 at a casino birthday party for one of his friends. The Booths provide the sole support for 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). Ken and Amy can claim a $500 other dependent credit for each parent. Required: Complete the Booth's Form 1040 and the related schedules and forms provided. Assume the taxpayers had full-year health coverage and neither taxpayer wants to contribute to the presidential election campaign. A statement is required to be attached to a return for a nonbusiness bad debt, but this requirement may be ignored for this problem. You may ignore any related self-employment taxes. Assume no 1099-B is filed in association with the bad debt when filling out Form 8949. You may need to complete the other forms before completing the Form 1040. If an amount box does not require an entry or the answer is zero, enter "0". If required, round amounts to the nearest dollar. Enter all amounts as positive numbers. However, if required, use the minus sign to enter a "loss". Schedule C Complete Amy Booth's Schedule C. OMB No. 1545-0074 SCHEDULE C (Form 1040 or 1040-SR) 2019 Profit or Loss From Business (Sole Proprietorship) Go to www.irs.gov/Schedule for instructions and the latest information. Attach to Form 1040, 1040-SR, 1040-NR, or 1041; partnerships generally must file Form 1065. Department of the Treasury Internal Revenue Service (99) 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 Business name. If no separate business name, leave blank. The Disk Drive D Employer ID number (EIN) (see instr.) 271-23-4567 E F Business address (including suite or room no.) 2000 Broadway Street. City, town or post office, state, and ZIP code Menomonie, WI 54751 Accounting method: (1) Cash (2) Accrual (3) Other (specify) Did you "materially participate in the operation of this business during 2019? If "No," see instructions for limit on losses G x Yes No H I If you started or acquired this business during 2019, check here. Did you make any payments in 2019 that would require you to file Form(s) 1099? (see instructions) If "Yes," did you or will you file required Forms 1099?...... Yes No J Yes O 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 ............. 1 321,000 2 Returns and allowances. 2 3 Subtract line 2 from line 1 3 321,000 4 Cost of goods sold (from line 42). 4 5 Gross profit. Subtract line 4 from line 3 5 6 6 Other income, including federal and state gasoline or fuel tax credit or refund (see instructions) ... 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 10 Commissions and fees ...... 10 20 Rent or lease (see instructions): .... a Vehicles, machinery, and equipment b Other business property .. 20a 11 Contract labor (see instructions) 11 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 Part III) (see instructions) 13 24 Travel and meals: a Travel ... 14 Employee benefit programs 24a (other than on line 19)..... 14 b Deductible meals (see 15 Insurance (other than health) 15 instructions) 24b 16 Interest (see instructions): 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 29 Tentative profit or loss). Subtract line 28 from line 7.. 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 31 Net profit or loss). Subtract line 30 from line 29. If a profit, enter on both Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, 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 } 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 Schedule 1 (Form 1040 or 1040-SR), line 3 (or Form 1040-NR, 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 > All investment is at risk. 32b O Some investment is not at risk. For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11334P Schedule C (Form 1040 or 1040-SR) 2019 123-45-7890 Page 2 Schedule C (Form 1040 or 1040-SR) 2019 Amy Booth Part III Cost of Goods Sold (see instructions) 33 Method(s) used to value closing inventory: a Cost b Lower of cost or market C Other (attach explanation) 34 Was there any change in determining quantities, costs, or valuations between opening and closing inventory? If "Yes," attach explanation .. 35 Inventory at beginning of year. If different from last year's closing inventory, attach explanation. Yes No 35 36 Purchases less cost of items withdrawn for personal use 36 37 Cost of labor. Do not include any amounts paid to yourself. 37 38 Materials and supplies 38 39 Other costs... 39 40 Add lines 35 through 39 40 41 Inventory at end of year 41 42 Cost of goods sold. Subtract line 41 from line 40. Enter the result here and on line 4 42 Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses on line 9 and are not required to file Form 4562 for this business. See the instructions for line 13 to find out if you must file Form 4562. 43 When did you place your vehicle in service for business purposes? (month, day, year) 44 Of the total number of miles you drove your vehicle during 2019, enter the number of miles you used your vehicle for: a Business b Commuting (see instructions) C Other Yes O No 45 Was your vehicle available for personal use during off-duty hours? 46 Do you (or your spouse) have another vehicle available for personal use? 47a Do you have evidence to support your deduction?.. Yes No Yes b If "Yes," is the evidence written? 0 Yes O No Part V Other Expenses. List below business expenses not included on lines 8-26 or line 30. Other