Reference no: EM132705434
Problem - Ken (birthdate July 1, 1987) and Amy (birthdate July 4, 1989) Booth have brought you the following information regarding their income, expenses, and withholding for the year. They are unsure which of these items must be used to calculate taxable income.
Income:
Ken's salary (salesman) $28,345
Amy's wages (part-time nurse) 17,490
Insurance reimbursement for repairs from an auto accident 500
Gift from Uncle George 2,000
Interest income from Lodge State Bank 833
Federal income taxes withheld:
From Ken's salary 2,600
From Amy's wages 650
Amy owns and operates a computer bookstore named "The Disk Drive." The store is located at 2000 Broadway Street, Menomonie, WI 54751. The business EIN is 27-1234567 and the principal business code for bookstores is 451211. During 2018, Amy had the following income and expenses:
Sales of books $320,985
Expenses
Store rental 15,985
Office expense 6,150
Advertising 11,700
City business license 1,020
Payroll 83,550
Payroll taxes 8,392
Utilities 8,050
Other 3,000
Cost of inventory sold 184,855
Amy treats inventory as non-incidental materials and supplies. This year, Amy loaned a friend $10,000 so that he could make an investment. Instead of making the investment, the friend lost all the money gambling and left for parts unknown. Amy has no hope of ever collecting on this bad debt. Ken, who ordinarily never gambles, won $20,000 at a casino birthday party for one of his friends. The Booths provide the sole support for Ken's parents, Rod (Social Security number 124-80-9050) and Mary (Social Security number 489-37-6676) Booth, who live in their own home. Ken and Amy live at 2345 Wilson Avenue, Menomonie, WI, 54751, and their Social Security numbers are 343-75-3456 (Ken) and 123-45-7890 (Amy).
Required - Complete the Booths' federal income tax return for 2018 on Form 1040, Schedule 1, Schedule C, Schedule D, and Form 8949. A statement is required to be attached to a return for a nonbusiness bad debt, but this requirement may be ignored for this problem. Assume no 1099-B is filed in association with the bad debt when filling out Form 8949.
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