Ken (birthdate July 1, 1985) and Amy (birthdate July 4, 1987) 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.

Amy owns and operates a computer bookstore named “The Disk Drive.” The store is located at 2000 Broadway Street, Menomonie, WI 54751. The business EIN is 27-1234567 and the principal business code for bookstores is 451211 During 2016, Amy had the following income and expenses:

The previous year was Amy’s first year of operating the bookstore Amy and Ken elected to carry forward a $2,175 net operating loss from the first year of business into 2016 (Note: Net operating losses are reported on the “Other Income” line of Form 1040.)

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 $22,000 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).

Required: Complete the Booths’ federal income tax return for 2016. Use Form 1040, Schedule C, Schedule D, and Form 8949, on Pages 3-49 to 3-56 to complete this tax return. 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 Form 8949.
 

Income: Ken's salary (salesman) Amy's wages (part-time nurse) Insurance reimbursement for repairs from an auto accident Gift from Uncle George Interest income from Lodge State Bank Federal income taxes withheld: From Ken's salary From Amy's wages $28,345 17,890 500 2,000 712 2,200 650