Taxpayer information, Form 1040, Schedules 1, 2, and 3, Schedule A, and Schedule B
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, 2023Revenue:Gross Sales$150,500.00Less: Sales Returns and Allowances-Net Sales$150,500.00Cost of Goods Sold:Beginning Inventory$11,000.00Add: Purchases66,000.00$77,000.00Less: Ending Inventory10,200.00Cost of Goods Sold66,800.00Gross Profit (Loss)$83,700.00Expenses:Dues and Subscriptions-Estimated Federal Tax Payments4,100.00Estimated State Tax Payments3,800.00Insurance4,000.00Meals and Entertainment1,600.00Miscellaneous300.00Payroll Taxes4,000.00Professional Fees1,800.00Rent8,500.00Travel1,300.00Utilities1,500.00Vehicle Expenses-Wages25,000.00Total Expenses55,900.00Net Operating Income$27,800.00
4. Details of The Arc’s meals and entertainment:
Meals associated with business travel$500Arc employee holiday party300Overtime meals for employees200Sports tickets for entertaining large customers600$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$250Church donations (for which a written
acknowledgment was received)5,200Real estate taxes on their home2,405Medical co-pays for doctor visits650Mortgage interest for purchase of home (See Form 1098)Tax return preparation fees350Credit card interest220Automobile insurance premiums600Uniforms for Joan125Contribution 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$16,200Insurance800Interest expense2,800Property taxes1,500Miscellaneous expenses500
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 1Part 2Part 3Form 1040Schedule CForm 2441
(Only page 1 is required)Schedule 1Schedule DSchedule ESchedule 2Schedule SEForm 4562Schedule 3Qualified Dividends and Capital
Gain Tax WorksheetSchedule 8812Schedule AForm 8995Schedule B