Kelly and Chanelle Chambers, ages 47 and 45, are married and live at 584 Thoreau Drive, Boston, MA 59483. Kelly’s Social Security number is 111-11-1111 and Chanelle’s is 222-22-2222. The Chambers have two children: Emma, age 23, and Chet, age 19. Their Social Security numbers are 333-33-3333 and 444-44-4444, respectively. Emma is a single college student and earned $8,000 during the summer. Kelly and Chanelle help Emma through school by paying for her room, board, and tuition. Emma lives at home during the summer. Chet has a physical handicap and lives at home. He attends a local university and earned $4,000 working for a marketing firm. In sum, Kelly and Chanelle provide more than 50% of both Emma’s and Chet’s total support for the year. Kelly is a commercial pilot for a small airline. His salary is $95,000, from which $19,000 of federal income tax and $8,000 of state income tax were withheld. Kelly also pays premiums for health, disability, and life insurance. $2,000 of the premium was for health insurance, $250 for disability, and $400 for life insurance. Chanelle owns Alliance Networks, a proprietorship that does network consulting. During the year, Chanelle’s gross revenues were $23,000. She incurred the following expenses in her business:
Liability insurance..................................................................... $ 700
Software rental.......................................................................... 5,400
Journals and magazines............................................................... 150
Training seminars...................................................................... 1,200
Supplies....................................................................................... 1,300
Donations to a political campaign fund..................................... 800
Kelly enjoys playing guitar and plays in a band. Kelly’s band has developed a local following. This year, his gross revenues were $1,200 for playing shows and $700 on CD sales. He incurred the following expenses:
Studio rent expense................................................................ $1,300
Sound system repairs.................................................................. 200
CD production............................................................................... 500
New guitar and amplifier............................................................. 800
Kelly’s father passed away during the year. Kelly and Chanelle received $100,000 from the life insurance policy. Neither Kelly nor Chanelle paid any of the premiums. Chanelle purchased 100 shares of Thurston Co. stock on May 1, 1992, for $1,000. Thurston Co. was declared bankrupt during the current year. Chet’s physician recommended that he see a physical therapist to help with his disability. Kelly paid the therapist $7,000 during the year because his insurance would not cover the bills. Kelly and Chanelle went to Las Vegas and won $5,000 at the blackjack table. The next night, they lost $6,000. Kelly and Chanelle gave $900 to their church and, during the year, they had the following other income and expenses:
Real estate taxes..................................................................... $1,400
Property taxes on car (determined by value)........................... 500
Home mortgage interest.......................................................... 9,000
Credit card finance charges...................................................... 2,600
Tax return preparation fees

      ($600 is allocable to Chanelle’s business)......................... 1,000
Sales tax on purchases during the year.................................. 6,200
Interest from a savings account.................................................. 800
Interest from City of Boston Bonds............................................. 700
Dividend from 3M stock................................................................. 400
Prepare Kelly and Chanelle’s tax return Form 1040 and Schedules A, B, C, D, and SE for the current year.