Charles and Mary Nairn live with their family at 342 Magnolia Ave, Ashville NC 28801. Charles’ social security number is 434-11-3311; Mary’s is 456-87-5432. Charlie is 44 and Mary is 38. Both enjoy good health and eyesight. Charlie retired from the Air Force three years ago and then bought and operates a pet store. Mary is the office manager at city hall in Ashville.

1. The Nairn’s have two children, a son name William (social security number 598-01-2345), who is twelve years old, and a daughter named Rose (social security number 554-33-2411), who is eight years old.

2. For the current year, Mary’s W-2 from the City Hall showed the following:

Wages (Box 1) $25,870

Wages (Box 3 & 5) $30,480

Federal income tax withheld (Box 2) 4,820

FICA / Medicare (Box 4 and 6) 2,360

State income tax withheld (Box 17) 1,560

PreTax Health Insurance Benefit (Box 12) 4,610

3. Charlie’s 1099-R from the Air Force showed the following:

Gross distribution $22,365

Taxable distribution 22,365

Federal income tax withheld

2,680 State distribution 22,365

State income tax withheld – NC 0

4. Charles’ pet store is located at 185 Mission Road, Ashville, NC 28801. The name of the store is “Four Pets Sake” and its taxpayer ID number is 26-9876556. The beginning and ending inventories were $12,500 and $13,000, respectively. The revenue and expenses for the year are as follows:

Sales $204,200

Expenses: Cost of Sales $74,000

Insurance 3,000

Accounting Fees 2,400

Wages 36,000

Payroll taxes 3,120

Utilities 3,000

Rental expense 18,000

Telephone 900

Depreciation: Equipment 4,200

Office expense 400

Other expense 1,200

Total Expenses 146,220

Net Income 57,980 Wages

On June 30, a new electronic cash register system was purchased for $5,400 to help with sales management and inventory control. Charlie talked with his bookkeeper and decided not to take Section 179, election to expense or bonus depreciation. This is 5-year property under MACRS.