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1. Noah and Joan Arc live in Dayton, OH. They have 2 sons Mike, age 18 and Sam age 14. Both sons live with parents. Mike is in first year of college.

2. Noah operates and fully manages a pet store in his town. This business is a single proprietorship. The following is the financial information for this business.

Revenue $185000

Cost of goods sold $61000

Insurance 1080

Professional fees 1700

Rent exp 8800

Utilities 2200

Wages 25000 TO OTHER EMPLOYEES.

Automobile exp 2400

Depreciation 3800

3. Joan works as a nurse in the city fire rescue center. Her salary information:

Salary 77800

Federal tax withheld and paid 4025

State tax withheld and paid 1240

4. They also own a vacation home on Lake Erie which was rented for 220 days and used for personal use for 20 days. This house is regularly used a secondary residence. They significantly participated in management of this rental activity. Revenue and expenses for entire year:

Rental revenue 19000

Insurance 1800

Mortgage interest 6870

Property tax 3000

Repairs 4000

Utilities 2000

Depreciation 9000

USE THE TAX COURT METHOD FOR ALLOCATING THE EXPENSES TO THE RENTAL DAYS. REFER TO THE TEXT BOOK FOR EXAMPLES.

1. During the year they sold some of their investment in stock. The information is as follows:

Stock Purchase date cost sale date sale price

BNB 2/10/2011 3500 8/5/2020 1500

MNM 01/03/2020 5300 8/5/2020 6100

XZX 10/2/2008 10300 8/5/2020 15300

There is a long term loss carryover from previous year in the amount of $2400. None of these stocks belong to qualified small business or section 1244.

2. During the year, on 5/1/2020, they sold a jewelry for $9,000. This property was given to Joan as a gift from her grandmother. The date of the gift was 7/4/2019. The grandmother purchased this jewelry in 2000 for $10,000. The fair value on the date of the gift was $8,000.

3. During the year the following amounts were paid

College tuition 22000

books and supplies 4500

Mortgage interest on MAIN residence 11300

Property tax 3600

Political contribution to state senator 250

Church donation 2600 cash

Medical expenses 2200

Donations to red cross 1000

4. They redeemed EE bonds and received $10,000: $2,000 of this amount is interest.
5. They also paid the following estimated taxes

Estimated federal tax 3000

Estimated state tax 1020

REQUIREMENTS:

CALCULATE THE FOLLOWING FOR THE YEAR 2020.

1. WAGES AND SALARIES
2. PROFIT OR LOSS FROM THE PET STORE BUSINESS
3. PROFIT OR LOSS FROM VACATION HOME RENTAL
4. NET CAPITAL GAIN OR NET CAPITAL LOSS FOR 2020,
5. ADJUSTED GROSS INCOME: after adjusting for pet business, vacation home rental, net capital gain or loss, self employment tax, EE bonds interest, charity deduction. Show all supporting calculations.
6. STANDARD OR ITEMIZED DEDUCTION
7. TAXABLE INCOME AND INCOME TAX FOR 2020.
8. TAX CREDIT
9. TAX DUE OR TAX REFUND.
10. PREPARE A TAX RETURN. Your answers for 1 to 9 should be entered in appropriate lines in the form 1040. You need to submit form 1040 only.

INSTRUCTIONS

1. You need to submit a document showing calculations for all answers 1 to 9.
2. You shall not use tax software for this project. I can find out if you had used the software. Any student using the software will get 0 points.
3. The line items in the form 1040 should match your answers 1 to 9

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