Show me the steps to solve Comprehensive Problem $2-$ Part $1$: Taxpayer information, Form $1040,$ Schedule $1,$ Schedule $2,$ Schedule $3,$ and Schedule B

Michael and Jeanette Boyd's Tax Return

Note: This problem is divided into four 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.

Michael D$.$ and Jeanette S$.$ Boyd live with their family at the Rock Glen House Bed & Breakfast, which Michael operates. The Bed & Breakfast $($B&B$)$ is located at $33333$ Fume Blanc Way, Temecula, CA $92591.$ Michael $($born May $4,1980)$ and Jeanette $($born June $12,1981)$ enjoy good health and eyesight.

$1.$ The Boyds have three sons. Maxwell was born on April $16,2005,$ Seve was born on December $2,2011,$ and Denzel was born on January $13,2013.$ All three boys live at home, and the Boyds provide more than $50\%$ of their support.

$2.$ The Rock Glen House B&B is operated as a sole proprietorship and had the following income and expenses for the year:

Room rental income $$140,000$

Vending machine income $2,100$

Advertising expense $5,000$

Depreciation for book and tax purposes $18,000$

Mortgage interest on the B&B $23,000$

Wages of custodial services $17,800$

Taxes and licenses $6,400$

Supplies consumed $19,000$

Business insurance $6,200$

Laundry expenses $4,200$

Accounting fees $1,800$

Office expenses $880$

SEP contributions for employees $980$

Utilities $6,100$

All of the above amounts relate to the business portion of the Bed & Breakfast; the personal portion is accounted for separately. The Rock Glen House B&B uses the cash method of accounting and has no inventory. The employer tax ID number is $95-1234567.$

$3.$ The Boyds made estimated state income tax payments of $$3,000($all made during $2023).$

$4.$ Jeanette worked about $1,200$ hours as a substitute school teacher with the local school district. She also spent $$328$ out$-$of$-$pocket for various supplies for her classroom. For the current year, Jeanette's Form W$-2$ from the school district is located on a separate tab.

$5.$ Michael is retired from the U$.$S$.$ Navy. His annual statement from the Navy, Form $1099-$R$.$

$6.$ Michael and Jeanette paid $($and can substantiate$)$ the following amounts during the year:

Mastercard interest $$1,480$

Dental expenses $($orthodontics for Maxwell$)5,400$

California state income tax $($for $2022)2,100$

Charitable contributions $900$

Life insurance premiums $845$

Automobile registration fees $($deductible portion$)50$

Tax return preparation fee $475$

Contributions to the president's re$-$election campaign $1,000$

The Boyds are taking the standard deduction in $2023.$

$7.$ Michael and Jeanette's investment activity was reported on the Form $1099$s and $1099-$INT. Also, Jeanette owns Series EE U$.$S$.$ savings bonds. During the year, the bond redemption value increased by $$1,300.$ Jeanette has not elected the accrual method for these bonds. All the above stocks, bonds, and bank accounts are community property.

$8.$ Michael does all the significant work in the Bed & Breakfast and therefore he pays self$-$employment tax on $100$ percent of the earnings from the B&B$.$

$9.$ During the year, Michael$$s Uncle Boris died. Boris had a $$50,000$ life insurance policy that named Michael as the beneficiary. Michael received the check for the benefits payable under the policy on November $30$ of the current year. Boris also left Michael a parcel of land with an appraised value of $$120,000.$

$10.$ Michael is a general partner in a partnership that owns a boutique hotel in northern California and leases the property to a hotel management company. Michael does not materially participate in the partnership activity but the partnership activity does rise to the level of a trade or business. See Schedule K$-1$ from the partnership.

$11.$ Jeanette was not eligible for health care benefits due to the part$-$time nature of her job, thus health insurance for the Boyd household was purchased through the Covered California program and the Boyds received the Form $1095-$A$.$ They had no other health insurance during $2023.$ Assume that the self$-$employed health insurance deduction is $$888$ and is associated with the B&B business $($not the partnership$).$ The Boyds were not paid an advance premium tax credit. Click here to access the completed Form $1095-$A to use when completing Form $8962.$

$12.$ Michael wishes to make the maximum $2023$ contribution to his B&B SEP IRA in April $2024$ when he files his tax return. Michael wants this amount to be calculated and reported on the $2023$ tax return. Michael does not have a retirement plan associated with his partnership interest.

$13.$ On October $4,2023,$ the Boyds purchased a $2023$ Ford F$-150$ Lightning EV truck for personal use. The MSRP on the vehicle was $$49,995.$ The total cost including destination fees and sales tax was $$55,228.$ The VIN of the truck was $1$FTVW$1$EL$6$NWG$15282.$ They paid $$20,000$ down and financed the rest with a home equity loan. Interest paid on the home equity lo