Question

Ken (birthdate July 1, 1988) and Amy (birthdate July 4, 1990) 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) $28,500 Amy's wages (part-time nurse) 17,500 Insurance reimbursement for repairs from an auto accident 500 Gift from Uncle George 2,000 Interest income from Lodge State Bank 840 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. During 2019, Amy had the following income and expenses:

Sales of books $321,000 Expenses Store rental 16,000 Office expense 6,000 Advertising 11,700 City business license 1,020 Payroll 83,550 Payroll taxes 8,400 Utilities 8,050 Other 3,000 Cost of inventory sold 185,000

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). Ken and Amy can claim a $500 other dependent credit for each parent.

Required:
Complete the Booth's Form 1040 and the related schedules and forms provided. Assume the taxpayers had full-year health coverage and neither taxpayer wants to contribute to the presidential election campaign.

A statement is required to be attached to a return for a nonbusiness bad debt, but this requirement may be ignored for this problem. You may ignore any related self-employment taxes. Assume no 1099-B is filed in association with the bad debt when filling out Form 8949.

Answer 1

Ken (birthdate July 1, 1988) and Amy (birthdate July 4, 1990) Booth have brought you the following information regarding their income, expenses, and withholding for the year.