Understanding Taxable Income and Expenses for a Bookstore

School: Henry Ford College - Course: BUSINESS BOS184 - Subject: Accounting

Intuit Software Tax Return 3 Ken (37 D.O.B. 11/12/1985) and Amy (33 D.O.B. 10/17/1989) Booth, have brought you the following information regarding their federal income tax return. They are unsure which of these items must be used to calculate taxable income. Assume that the W-2's are ordinary with no special situations. Amy owns and operates a computer bookstore named "The Disk Drive". The store is located at 2000 Broadway Street, Menomonie, WI 54751. The principal business code for the bookstore is 451211.The business description is a bookstore, the business category is "Retail Stores and Dealers" and her Employer Fed ID number is 38-1234567. Below are a few things to assist you in preparing your Schedule C. Assume that the business has employees and maintains records of inventory and cost of goods sold. Assume that the cash basis is used and that Amy materially participates in the business. Assume that all revenue comes from sales receipts. Assume that the cost method is used for valuing inventory and that Amy keeps a supply of raw material for purchase or resale in 2022. During 2022, Amy had the following income and expenses: Amy's Income and Expenses Sale of Books$319,240 Expenses: Store Rental$15,900 Office Expense$6,000 Advertising$11,900 City Business License$1,000 Payroll (i.e. Wages)$84,550 Payroll Taxes$8,468 Utilities$8,000 Other$3,000Taxable Income Insurance reimbursement for repairs from an auto accident$500 Gift from Uncle George$2,000

Amy's Income and Expenses Inventory: 1/1/20/2022$250,000 12/31/2022$232,000 Purchases During the Year$165,000 The previous year was Amy's first year operating the bookstore. 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 the bad debt. Ken, who ordinarily never gambles, won $25,000 at a casino birthday party for one of his friends.Assume the gambling winnings were not reported on a W-2G or K-1. Below are the W-2's and 1099 issued to the Booth's.