Noah and Joan Arc live with their family

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 firefighter 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 Bob after school.

2. For the current year, Joan’s W-2 from the city fire department is located below. Noah made estimated federal income tax payments of $12,000 and estimated state income tax payments of $1,020 during the current year.

a Employee’s social security number 456-87-5432 OMB No. 1545-0008 Safe, accurate, FAST! Use IRS e ~ file Visit the IRS website at www.irs.gov/efile b Employer identification number (EIN) 33-4382966 1 Wages, tips, other compensation 27,600.00 2 Federal income tax withheld 5,050.00 c Employer’s name, address, and ZIP code Santee Fire Department Santee, CA 92071 3 Social security wages 27,600.00 4 Social security tax withheld 1,711.20 5 Medicare wages and tips 27,600.00 6 Medicare tax withheld 400.20 7 Social security tips 8 Allocated tips d Control number 9 10 Dependent care benefits e Employee’s first name and initial Last name Suff. 11 Nonqualified plans 12a See instructions for box 12 C o d e Joan Arc 4342 Josie Jo Santee, CA 92071 13 Statutory employee Retirement plan Third-party sick pay ☐ ☐ ☐ 12b C o d e 14 Other 12c C o d e 12d C o d e f Employee’s address and ZIP code 15 State Employer’s state ID number 16 State wages, tips, etc. 17 State income tax 18 Local wages, tips, etc. 19 Local income tax 20 Locality name CA 1126-87021 27,600.00 1,240.00 Form W-2 Wage and Tax Statement 2015 Department of the Treasury—Internal Revenue Service Copy B—To Be Filed With Employee’s FEDERAL Tax Return. This information is being furnished to the Internal Revenue Service.

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 acknowledgment was received) 2,700 Real estate taxes on their home 1,350 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 $2,300.

6. During the year, Noah and Joan received the following qualifying dividends:

Exxon $302 Texas Utilities 220 Coca-Cola See 1099-DIV

All stocks, bonds, and savings accounts were purchased or established with community property.

7. Noah and Joan own rental property (a single family residence) located at 6431 Gary Ct., San Diego, CA 92115. The revenue and expenses for the year are as follows:

Rent income See 1099-MISC Insurance $575 Interest expense 6,870 Property taxes 1,000 Miscellaneous expenses 600 Depreciation (the house was acquired in 1991) 3,000

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. You are not required to complete a California state income tax return. Noah and Joan have completed a tax organizer and have also given you several IRS forms (see 1099-DIV, 1099-MISC and 1098) 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: Only page 1 of Schedule E is required.

Click here to access the tax table to use for this problem.

If required, enter a “loss” as a negative number on the tax form. Do not enter deductions as negative numbers. If an amount box does not require an entry or the answer is zero, enter “0”. If required, round your answers to the nearest dollar. However, on Schedule SE, use the rounded amounts in subsequent computations.