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 that are used on Form 1040.

Noah and Joan Arc live with their family at 4342 Josie Jo, Santee, CA 92071. Noah's Social Security number is 434-11-3311; Joan's is 456-87-5432. Both are in their mid-30s and enjoy good health and eyesight. Noah owns and operates a pet store and Joan is a firefighter for the city.

1. The Arcs have two children, a son named Billie Bob (Social Security number 598-01-2345), who is 7 years old, and a daughter named Mary Sue (Social Security number 554-33-2411), who is 4 years old. The Arcs paid $3,200 to the Roundup Day Care Center to take care of Mary Sue while they worked. Because Joan is a firefighter, she was home in the afternoon to care for Billie Bob after school.

2. For the current year, Joan's W-2 from the city fire department is located below. Noah made estimated federal income tax payments of $12,000 and estimated state income tax payments of $1,020 during the current year.

aEmployee's social security number 456-87-5432

OMB No. 1545-0008

Safe, accurate, FAST! Use

IRSe ~ file

Visit the IRS website at www.irs.gov/efile

b

Employer identification number (EIN) 33-4382966

1

Wages, tips, other compensation 27,600.00

2

Federal income tax withheld 5,050.00

c

Employer's name, address, and ZIP code Santee Fire Department Santee, CA 92071

3

Social security wages 27,600.00

4

Social security tax withheld 1,711.20

5

Medicare wages and tips 27,600.00

6

Medicare tax withheld 400.20

7

Social security tips

8

Allocated tips

d

Control number

9

10

Dependent care benefits

e

Employee's first name and initial

Last name

Suff.

11

Nonqualified plans

12a

See instructions for box 12

C o d e

Joan Arc 4342 Josie Jo Santee, CA 92071

13

Statutory employee	Retirement plan	Third-party sick pay

12b

C o d e

14

Other

12c

C o d e

12d

C o d e

f

Employee's address and ZIP code

15	State	Employer's state ID number	16	State wages, tips, etc.	17	State income tax	18	Local wages, tips, etc.	19	Local income tax	20	Locality name
CA	1126-87021	27,600.00	1,240.00

FormW-2Wage and Tax Statement	2015	Department of the TreasuryInternal Revenue Service
Copy BTo Be Filed With Employee's FEDERAL Tax Return. This information is being furnished to the Internal Revenue Service.

3. Noah's pet store is located at 18542 Mission Road, Santee, CA 92071. The name of the store is The Arc, and its taxpayer ID number is 95-9876556. The beginning inventories and ending inventories are both $10,000. The revenue and expenses for the year are as follows:

Sales revenue (merchant card sales)	$ 144,300
Expenses:
Cost of sales	$61,900
Insurance	780
Accounting fees	1,800
Wages	25,100
Payroll taxes	2,250
Business meals (total)	$400
Utilities	2,650
Rental expense	7,600

4. 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)	2,700
Real estate taxes on their home	1,350
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

5. Noah likes to invest in the stock market. His Form 1099-B showed the following information for Noah's stock sales:

Stock	Date Acquired	Date Sold	Sales Price	Cost Basis
Blue Co.	02/11/05	08/15/15	$4,500	$2,400
Yellow Co.	01/31/15	06/05/15	6,000	5,300
Red Co.	10/02/06	10/07/15	12,200	1,600

The expenses of sale are included in the cost basis. Noah has a long-term capital loss carryover from last year of $2,300.

6. During the year, Noah and Joan received the following qualifying dividends:

Exxon	$302
Texas Utilities	220
Coca-Cola	See 1099-DIV

All stocks, bonds, and savings accounts were purchased or established with community property.

7. Noah and Joan own rental property (a single family residence) located at 6431 Gary Ct., San Diego, CA 92115. The revenue and expenses for the year are as follows:

Rent income	See 1099-MISC
Insurance	$575
Interest expense	6,870
Property taxes	1,000
Miscellaneous expenses	600
Depreciation (the house was acquired in 1991)	3,000

8. All members of the Arc household were covered for the entire year under health care insurance through Joans employer.

Required:Although Noah and Joan do not believe their tax return will be unduly complicated, they do realize their limitations and come to you for assistance. You are to prepare their federal income tax return in good form, signing the return as the preparer. You are not required to complete a California state income tax return. Noah and Joan have completed a tax organizer and have also given you several IRS forms (see1099-DIV,1099-MISCand1098) that they were not sure what to do with. Make realistic assumptions about any missing data (addresses, etc.) that you may need. The following forms and schedules are required:

Form 1040	Schedule E
Schedule A	Schedule SE
Schedule B	Form 2441
Schedule C	Form 8949
Schedule D	Qualified Dividends and Capital Gain Tax Worksheet

Note:Only page 1 of Schedule E is required.

Click here to access thetax tableto use for this problem.

If required, enter a "loss" as a negative number on the tax form. Do not enter deductions as negative numbers. 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. However, onSchedule SE, use the rounded amounts in subsequent computations.

Form1040

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 Noah	Last name Arc	Your social security number 434-11-3311
If a joint return, spouse's first name and initial Joan	Last name Arc	Spouse's social security number 456-87-5432
Home address (number and street). If you have a P.O. box, see instructions. 4342 Josie Jo	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). Santee, CA 92071	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. YouSpouse
Foreign country name	Foreign province/state/country	Foreign postal code