Comprehensive Problem One
Noah and Joan Arc's Tax Return
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 fire-fighter 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 Bod after school
2. For the current year, Joan's W-2 from the city fire department is located on Page D-4. Noah made estimated federal income tax payments of $12,000 and estimated state income tax payments of $1,020 during the current year.
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 acknowledge was received) 2700
Real estate taxes on their home 1350
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 $2.350.
6. During the year, Noah and Joan received the following qualifying dividends:
Exxon $302
Texas Utilities 220
Coca-Cola See 1099-DIV (Page D-4)
All stocks, bonds, and savings accounts were purchased or established with community property.
7. Noah and Joan own rental property located at 6431 Gary Ct. San Diego, CA 92115. The revenue and expenses for the year are as follows:
Rent income $575
Insurance 6,870
Interest expense 1,000
Property taxes 600
Miscellaneous expenses 3,000
Depreciation (the house was acquired in 1991)
8. All members of the Arc household were covered for the entire year under health care insurance through Joan's 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. Do not complete a California state income tax return. Noah and Joan have completed a tax organizer and have also given you several IRS forms (see Pages D-4 and D-5) 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:The forms included in Appendix D are provided for the student to work on only one of the two comprehensive problems. If desired, additional forms may be obtained from the IRS website at www.irs.gov
Form W-2 (informationProvided) (year 2015)
Employer identification number (EIN) 33-4382966
Employer's name, address, and ZIP code Santee Fire Department, Santee, CA 92071
Employee's first name and initial last name Joan Arc
Employee's address and zip code 4342 Josie Jo, Santee, CA 92071
State CA
Employer's state ID number 1126-87021
Wages, tips, other compensation 27,600.00
Federal income tax withheld 5,050.00
Social security wages 27,600.00
Social security tax withheld 1,711.20
Medicare wages and tips 27,600.00
Medicare tax withheld 400.20
State wages, tips, etc. 27,600.00
State income tax 1,240.00
Form 1099-DIV (information provided)
Payer's name, street address, city or town... Coca-Cola
1296 Peachtree Road
Atlanta, GA 14628
Payer's federal identification# 33-042111
Recipient's identification # 434-11-3311
Recipient's name Noah Arc
Street address 4342 Josie Jo
Santee, CA 92071
Total ordinary dividends $320.00
Qualified dividends $320.00
Form-MISC
Payer's name, street address, city or town.... Santee Property Mgmt.
1234 Main Street
Santee, CA 92078
Payer's federal identification number 33-6295014
Recipient's identification number 434-11-3311
Recipient's name Noah Arc
Street address 4342 Josie Jo
Santee, CA 92071
Rents $13,800.00
Form 1098 (information provided)
Recipient's lender's name, street, address..... Chase Mortgage
Recipient's federal identification # 13-4296127
Payer's social 434-11-3311
Payer's Borrower name Noah and Joan Arc
Street address 4342 Josie Jo
City or town, state or providence... Santee, CA 92071
Mortgage interest received $11,100.00
The following are some additions or changes which you must incorporate into this problem:
(A) Noah and Joan Arc donated a 2005 Honda Accord to a needy family in their town.
(B) For # 5 - on page D-3, you need to change the Red Co.'s Sales Price from $12,200 to $300. Three Hundred dollars is the revised amount to use for what the Arc's received when they sold the stock.
(C) For # 6 - all the dividends received were ordinary dividends. None were qualifying dividends. So change the 1099 DIV form on page D-4 to show 0 (zero) in box 1b.
(D) Do not pay attention to the community property comment included under the dividends in #6.
(E) I am adding a #9 - Joan has been going to college for the past three years and is enrolled at least half-time each semester in an accounting degree program. Her 1098 T form showed $2,950 in tuition paid and billed in 2015. Joan paid all the tuition. She does not get reimbursed by her employer. She also paid $535 for books for her accounting courses. Also, she has never been convicted of a drug felony offense and she does not have a prior college degree.
(F) I am adding a # 10 - They bought a new car on 02/22/2015 which cost $30,000 and they paid $1,800 in sales tax.
The forms should be prepared manually. You can use whole numbers and not use any decimals. Please write neatly and make sure you put your name at the top of page one and also sign your name as the preparer.