U.S Tax Law with 2019 revisions

Comprehensive Problem 3-2B

Christopher Crosphit (birthdate April 28, 1977) owns and operates a health club called "Catawba Fitness". The business is located at 4321 New Cut Road, Spartanburg, SC 29303. The principal business code is 812190 and the EIN is 12-3456789. Chris had the following income and expenses from the health club:

Income	$216,000
Expenses:
Business insurance	3,600
Office supplies	3,300
Payroll	98,900
Payroll taxes	9,112
Travel	2,420
Equipment & club maintenance	10,720
Cleaning service	8,775
Equipment rent	22,820
Utilities (electric, water, gas)	13,975
Telephone	2,778
Rent	32,600
Advertising	5,200
Special workout clothing and boxing gloves	780
Subscription to Biceps Monthly magazine	120
Educational seminar on weight training	770
Other expenses	1,830

The business uses the cash method of accounting and has no accounts receivable or inventory held for resale.

Chris has the following interest income for the year:

Upper Piedmont Savings Bank savings account	$13,000
Morgan Bank bond portfolio interest	12,075

(You may assume that the bond portfolio interest is from corporate bonds.)

Chris also dabbles as a broker of antique and rare books. He acquires and scavenges for books and then sells them on the Internet. He generated $4,000 of sales in 2019 and the books he sold cost $3,500. He also incurred $7,600 in travel and other expenses related to this activity. Chris has never turned a profit in the book business, but he loves books and book selling and does not mind losing money doing it.

Chris has been a widower for 10 years with a dependent son, Arnold (Social Security number 276-23-3954), and he files his tax return as head of household. Arnold (birthdate July 1, 2001) is a high school student; he does not qualify for the child tax credit but does qualify for the $500 other dependent credit. They live next door to the health club at 4323 New Cut Road. Chris does all the administrative work for the health club out of an office in his home. The room is 171 square feet and the house has a total of 1,800 square feet. Chris pays $20,000 per year in rent and $4,000 in utilities.

Chris' Social Security number is 565-12-6789. He made an estimated tax payment to the IRS of $500 on April 15, 2019.

Required: Complete Form 1040, Schedule 1, Schedule 3, Schedule B, Schedule C, and Form 8829 for Chris. Assume the taxpayer had full-year health coverage and does not want to contribute to the presidential election campaign.

• Do not complete Form 4562 (depreciation).
• Make realistic assumptions about any missing data.
• If required, enter a "loss" as a negative number on the tax form. Do not enter deductions or other amounts as negative numbers.
• If an amount box does not require an entry or the answer is zero, enter "0".
• Round any percentages to two decimal places.
• Round any dollar amounts to the nearest dollar.