Comprehensive Problem 1 - Part 1: 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.

Update: The final QBI deduction Regulations indicate that the SE tax deduction is to be incorporated into the computation of QBI.

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, 1984, and Joan was born on July 1, 1985. 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 Billie Bob (Social Security number 598-01-2345), born on March 21, 2012, and a daughter named Mary Sue (Social Security number 554-33-2411), born on December 3, 2015. They received a statement from Roundup Day Care Center (located on a separate tab) regarding the cost of child care provided for Mary Sue.

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 Squab 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, 2019
Revenue:
	Gross Sales			$143,245.00
	Less: Sales Returns and Allowances			0.00
	Net Sales			$143,245.00
Cost of Goods Sold:
	Beginning Inventory	$10,204.00
	Add: Purchases	62,111.00
		$72,315.00
	Less: Ending Inventory	9,987.00
	Cost of Goods Sold			62,328.00
	Gross Profit (Loss)			$80,917.00
Expenses:
	Dues and Subscriptions	$0.00
	Estimated Federal Tax Payments	8,000.00
	Estimated State Tax Payments	4,000.00
	Insurance	780.00
	Meals and Entertainment	1,338.00
	Miscellaneous	0.00
	Payroll Taxes	3,840.00
	Professional Fees	1,700.00
	Rent	8,400.00
	Travel	1,231.00
	Utilities	1,254.00
	Vehicle Expenses	0.00
	Wages	25,113.00
	Total Expenses			55,656.00
	Net Operating Income			$25,261.00

4. Detail of The Arc's meals and entertainment:

$400 Meals associated with business travel 60 Overtime meals for employees 878 Sports tickets for entertaining large customers $1,338

5. Travel costs are business related and do not include meals.

6. 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) 5,025 Real estate taxes on their home 2,375 Medical co-pays for doctor visits 700 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 Contribution to Noah's individual retirement account (made on April 1, 2020) 6,000

7. Noah has a long-term capital loss carryover from last year of $2,400.

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 2 hours per week on the rental activity. It was rented for 365 days. The revenue and expenses for the year are as follows:

Rental income $13,800 Insurance 575 Interest expense 6,870 Property taxes 1,016 Miscellaneous expenses 700

The home was acquired for $85,000 in 2003. No improvements have been made to the property.

9. The Arcs paid Ohio general sales tax of $976 during the year.

Required: You are to prepare the Arc's 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 1 Part 2 Part 3 Form 1040 Schedule C Form 2441 (Only page 1 is required) Schedule 1 Schedule D Schedule E Schedule 2 Schedule SE (Only page 1 is required) Form 4562 Schedule 3 Form 8949 Schedule 8812 Schedule A Qualified Dividends and Capital Gain Tax Worksheet Form 8995 Schedule B Child Tax Credit Worksheet

Additional Instructions:

• Click here to access the tax table to use for this problem.
• Neither taxpayer wants to make a contribution to the presidential election campaign.
• The taxpayers elect to use the foreign tax credit in lieu of the deduction.
• Enter all amounts as positive numbers, except for a "loss." If required, enter a "loss" as a negative number on the tax form.
• 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. On Schedule SE, use the rounded amounts in subsequent computations.
• Make realistic assumptions about any missing data that you may need.