Question

Ken (age 31) and Amy (age 28) 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)............ $27,200
Amy’s wages (part-time nurse)......... 18,200
Insurance reimbursement for repairs from an..... 500
auto accident
Gift from Uncle George............ 2,000
Interest income from Lodge State Bank...... 640
Federal income taxes withheld:
From Ken’s salary.............. 1,200
From Amy’s wages............... 650
Amy owns and operates a computer bookstore named “The Disk Drive.” The store is located at 2000 Park Ave, Bellview, ME 04104. During 2014, Amy had the following income and expenses:
Sales of books............ $320,400
Expenses
Store rental.............. 15,000
Office expense............ 6,000
Advertising.............. 14,000
City business license.......... 1,000
Payroll................ 89,000
Payroll taxes............. 9,100
Utilities............... 8,000
Other................ 3,000
Inventory
January 1................ 250,000
December 31................ 235,000
Purchases during the year......... 165,000
The previous year was Amy’s first year of operating the bookstore. Amy and Ken elected to carry forward a $5,000 net operating loss from the first year of business into 2014. This year, Amy loaned a friend $20,000 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 $25,000 at a casino birthday party for one of his friends. This amount should be reported on the “Other Income” line of Form 1040.
The Booths support 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 Park Ave, Bellview, ME 04104, and their Social Security numbers are 343-75-3456 (Ken) and 123-45-7890 (Amy).
Required:
Complete the Booths’ federal income tax return for 2014. Use Form 1040, Schedule C, Schedule D, and Form 8949, on Pages 3-49 to 3-56, and any other appropriate schedule(s) you need to complete this tax return. A statement is required to be attached to a return for a non business 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 Schedule D.


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  • CreatedJuly 16, 2015
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