RELIABLE DRUG STORE Income Statement For the Year Ended December 31, 2021

Operating revenue: Sales $324,200 Less sales returns and allowances (3390) Net sales $320,810

Cost of merchandise sold: Merchandise inventory, beginning $68,920

Purchases $198,240 Less purchases returns and allowances (8,100) Net purchases $190,140

Merchandise available for sale $259,060 Less merchandise inventory, ending (69,185) Cost of merchandise sold (189,875) Gross profit on sales $130,935

Operating expenses: Advertising expense $6541 Bad debt expense (direct write-off method) 850 Car and truck expense 7967 ** Depreciation expense 3396 Insurance expense (other than health) 644 Miscellaneous expense 125 Payroll taxes 3471 Travel expense 12,000 Telephone and utilities expense 2395 Rent expense (other business property) 256 Meals expense 70 Wages expense 62,500 Total operating expenses (100,215)

Net income $ 30,720

**: Maria drove her personal automobile for 13,163 business miles during the year. 7,304 of the business miles were before July 1. Total miles for the year were 32,815. There were 1,300 commuting miles. This is Maria's only car. She has kept a written log documenting her business miles, Maria first used the car in her business on May 4, 2020. She uses the standard mileage method.

10. Maria A. Solo owns and operates the Reliable Drug Store. Chapter 7 Cumulative Problem 2 required preparation of Form 1040, Schedules 1, 2, C, SE, and Form 8812. Her income is Qualified Business Income. a. Should Maria prepare Form 8995 or Form 8995-A? b. Fill out the appropriate form for Maria to claim her Qualified Business Income deduction. (SSN 318-01-6921) lives at 190 Glenn Drive, Grand Rapids, Michigan 49527-2005. Maria (age 45 and single) claims her aunt, Selda Ray (SSN 282-61-4011), as a dependent. Selda lives with Maria. Maria owns and operates the Reliable Drug Store at 1816 First Street in Grand Rapids, Michigan 49503-1902, in which she materially participates the entire year. Her EIN is 38-9654321. Employer quarterly payroll tax returns were filed as required, and Maria values her inventory at cost. The income statement for 2021 is reproduced on the next page. Maria reports on the accrual method but uses the "direct write-off" method to compute bad debt expense. Her business code is 446110 . She does not deduct expenses for an office in her home. An examination of Maria's business records reveals that the depreciable property includes furniture and fixtures, a delivery truck, and store equipment. The depreciation expense shown on the 2021 income statement meets the income tax requirements for depreciation for using the mentioned assets during 2021. Maria rounds calculations to the nearest dollar. Miscellaneous expenses include the following: Other income for Maria includes a salary of $100 each month for her services as a member of a working committee of the Drug Association. Her Form W-2 from the association shows gross wages of $1,200 and federal income tax withheld of $296. Maria also earned $320 in taxable interest. Maria made federal estimated tax payments totaling, $5,000. This amount is reported on Schedule 3 (Form 1040 or 1040 -SR) and on line 18 of Form 1040, page 2. Prepare Form 1040, Schedules 1, 2, 8812, C, and SE, and Form 8995 for Maria Solo using the forms provided on the pages that follow. Maria does not want $3 to go to the Presidential election campaign fund. She signs her return on April 15, 2021. Self-Employed Retirement Plans and Qualified Business Income Deductions 825 RELIABLE DRUG STORE Income Statement For the Year Ended December 31, 2021 Operating revenue: Sales $324,200$320,810(3,390) Less sales returns and allowances $320,810(3,390) Net sales cost of merchandise sold: Merchandise inventory, beginning $68,920 Purchases Less purchases returns and allowances Net purchases Merchandise available for sale Less merchandise inventory, ending Cost of merchandise sold Gross profit on sales $198,240 $190,140(8,100) $259,060 (69,185) (100,215) $30,720 Maria drove her personal automobile for 13,163 business miles during the year: 7,304 of the business miles were before July 1. Total miles for the year were 32,815. There were 1,300 commuting miles. This is Maria's only car. She has kept a written log documenting her business miles. Maria first used the car in her business on May 4, 2020. She uses the standard mileage method