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 to be used on Form $1040.$ Some of the data information will be reproduced in the other parts for convenience.

Noah and Joan Arc live with their family in Dayton, OH$.$ Noah$$s Social Security number is $434-11-3311.$ Noah was born on February $22,1988,$ and Joan was born on July $1,1989.$ Both enjoy good health and eyesight. Noah owns and operates a pet store, and Joan is a firefighter for the city of Dayton.

$1.$ The Arcs have two children, a son named Shem $($Social Security number $598-01-2345),$ born on March $21,2016,$ and a daughter named Nora $($Social Security number $554-33-2411),$ born on December $3,2019.$

$2.$ Joan and Noah brought a folder of tax documents $($see Forms W$-2$ and $1098).$ In addition, they received a Substitute $1099$ Statement from Charlotte Shaws Financial Services $($located on a separate tab$)$ regarding their stock transactions for the year.

$3.$ Noah$$s pet store is located at $1415$ S$.$ Patterson Blvd$,$ Dayton, OH $45409.$ The name of the store is $$The Arc$$ and its taxpayer identification number is $95-9876556.$ Since you handle Noah$$s bookkeeping, you have printed the income statement from your Quickbooks software, shown in the table below.

The Arc

$95-9876556$

Income Statement

For the Year Ended December $31,2023$

Revenue:

Gross Sales $$150,500\mathrm{.}00$

Less: Sales Returns and Allowances $-$

Net Sales $$150,500\mathrm{.}00$

Cost of Goods Sold:

Beginning Inventory $$11,000\mathrm{.}00$

Add: Purchases $66,000\mathrm{.}00$

$$77,000\mathrm{.}00$

Less: Ending Inventory $10,200\mathrm{.}00$

Cost of Goods Sold $66,800\mathrm{.}00$

Gross Profit $($Loss$)$ $$83,700\mathrm{.}00$

Expenses:

Dues and Subscriptions $-$

Estimated Federal Tax Payments $4,100\mathrm{.}00$

Estimated State Tax Payments $3,800\mathrm{.}00$

Insurance $4,000\mathrm{.}00$

Meals and Entertainment $1,600\mathrm{.}00$

$7,000\mathrm{.}00$ Miscellaneous $300\mathrm{.}00$

Payroll Taxes $4,000\mathrm{.}00$

Professional Fees $1,800\mathrm{.}00$

Rent $8,500\mathrm{.}00$

Travel $1,300\mathrm{.}00$

Utilities $1,500\mathrm{.}00$

Vehicle Expenses $-$

Wages $25,000\mathrm{.}00$

Total Expenses $55,900\mathrm{.}00$

Net Operating Income $$27,800\mathrm{.}00$

$4.$ Details of The Arc$$s meals and entertainment:

Meals associated with business travel $$500$

Arc employee holiday party $300$

Overtime meals for employees $200$

Sports tickets for entertaining large customers $600$

$$1,600$

$5.$ Travel costs are business related and do not include meals. Miscellaneous expense is a $$300$ contribution to Re$-$elect Goldie Wilson, Mayor of Dayton.

$6.$ Noah and Joan paid the following amounts during the year $($all by check$)$:

Contributions to Re$-$elect Goldie Wilson, Mayor of Dayton $$250$

Church donations $($for which a written

acknowledgment was received$)5,200$

Real estate taxes on their home $2,405$

Medical co$-$pays for doctor visits $650$

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 $125$

Contribution to Noah's individual retirement account $($made on April $1,2024)5,000$

$7.$ Noah has a long$-$term capital loss carryover from last year of $$1,100.$

$8.$ Noah and Joan own a condo and use it as a rental property. The condo is located at $16$ Oakwood Ave, Unit A$,$ Dayton, OH $45409.$ Noah provides the management services for the rental including selection of tenants, maintenance, repairs, rent collection, and other services as needed. On average, Noah spends about two hours per week on the rental activity. The revenue and expenses for the year are as follows:

Rental income received $$16,200$

Insurance $800$

Interest expense $2,800$

Property taxes $1,500$

Miscellaneous expenses $500$

Rental income includes $$1,150$ per month for two months under the previous lease $($which ended February $28,2023).$ The new lease is $$1,300$ per month for ten months under the new lease but the tenant paid only $$900$ in May $2023$ because the tenant paid $$400$ for repairs to the apartment, and with the Arc$$s permission, reduced May$$s rent by $$400.$ The new lease also required the tenant to pay last month$$s $$1,300$ rent in February $2023.$ The home was acquired for $$95,000$ in $2007.$ On May $12,2023,$ the Arcs installed new fixtures $(7-$year recovery period$)$ at a cost of $$5,500.$ They wish to maximize the cost recovery on the new fixtures but make no elections.

$9.$ The Arcs paid Ohio general sales tax of $$1,076$ during the year.

Required:

You are to prepare the Arcs' federal income tax return in good form. You are not to complete an Ohio state income tax return. The following forms and schedules are required and may be found in parts $1,2,$ or $3$:

Part $1$ Part $2$ Part $3$

Form $1040$ Schedule C Form $2441$

$($Only page $1$ is required$)$

Schedule $1$ Schedule D Schedule E

Schedule $2$ Schedule SE Form $4562$

Schedule $3$ Qualified Dividends and Capital

Gain Tax Worksheet Schedule $8812$

Schedule A Form $8995$

Schedule B

Additional Instructions:

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

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