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, 1989, and Joan w

A comprehensive tax return problem involves the complex process of accurately reporting income, deductions, and credits to minimize tax liability while ensuring compliance with tax laws. This can include navigating various income sources, understanding tax implications of investments, and maximizing eligible deductions to optimize overall tax outcomes.

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.

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, 1989, and Joan was born on July 1, 1990. 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 Shem (Social Security number 598-01-2345), born on March 21, 2017, and a daughter named Rayder (Social Security number 554-33-2411), born on December 3, 2020.

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 Shaws 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, 2024
Revenue:
	Gross Sales			$150,515.00
	Less: Sales Returns and Allowances			2,100.00
	Net Sales			$148,415.00
Cost of Goods Sold:
	Beginning Inventory	$11,000.00
	Add: Purchases	66,500.00
		$77,500.00
	Less: Ending Inventory	10,420.00
	Cost of Goods Sold			67,080.00
	Gross Profit (Loss)			$81,335.00
Expenses:
	Dues and Subscriptions	–
	Estimated Federal Tax Payments	4,000.00
	Estimated State Tax Payments	3,900.00
	Insurance	4,000.00
	Meals and Entertainment	1,800.00
	Miscellaneous	310.00
	Payroll Taxes	2,100.00
	Professional Fees	1,700.00
	Rent	7,800.00
	Travel	1,500.00
	Utilities	1,500.00
	Vehicle Expenses	–
	Wages	25,000.00
	Total Expenses			53,600.00
	Net Operating Income			$27,735.00

4. Details of The Arc’s meals and entertainment:

Meals associated with business travel $550 Arc employee holiday party 400 Overtime meals for employees 150 Season tickets to the Dayton Lizards minor league baseball team 700 $1,800

5. Travel costs represent airfare ($500) and lodging ($200 per night) for Noah’s attendance at the Global Pet Expo in Las Vegas, NV. Noah spent two days attending the largest retail pet store conference and three days gambling and attending concerts and shows.

6. Miscellaneous expense is a $300 fine paid to the City of Dayton for failure to post a valid business license.

7. Noah and Joan paid the following amounts during the year (all by check):

Contributions to Re-elect Goldie Wilson, Mayor of Dayton $250 Church donations (for which a written acknowledgment was received) 5,400 Real estate taxes on their home 2,600 Medical co-pays for doctor visits 700 Mortgage interest for purchase of home (Refer to 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, 2025) 7,000

8. Noah has a long-term capital loss carryover from last year of $990.

9. 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 two hours per week on the rental activity. The revenue and expenses for the year are as follows:

Rental income received $16,650 Insurance 900 Interest expense 4,800 Property taxes 2,400 Miscellaneous expenses 550

Rental income includes $1,200 per month for two months under the previous lease (which ended February 28, 2024). The new lease is $1,350 per month for 10 months under the new lease but the tenant paid only $750 in May 2024 because the tenant paid $600 for repairs to the apartment, and with the Arc’s permission, reduced May’s rent by $600. The new lease also required the tenant to pay last month’s $1,350 rent in February 2024. The home was acquired for $100,000 in 2008. On May 12, 2024, the Arcs installed new fixtures (7-year recovery period) at a cost of $4,750. They wish to maximize the cost recovery on the new fixtures but make no elections.

10. The Arcs paid Ohio general sales tax of $1,202 during the year.

Required:
You are to prepare the Arcs’ 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 Form 4562 Schedule 3 Qualified Dividends and Capital Gain Tax Worksheet Schedule 8812 Schedule A Form 8995 Schedule B

 

• 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.
• If the computations result in a refund, the taxpayers would like to receive the funds rather than applying to the next year.
• Make realistic assumptions about any missing data that you may need.