a. Richard and Anna Wilson are married and file a joint return, Richard is 47 years of age, and Anna is 46. Richard is employed by Telstar Corporation as its controller, and Anna is self-employed as a travel agent. They have three children: Michael, age 22; Lisa age 17, and Laura age 14. Michael is full-time student at Rutgers University. Lisa and Laura both live at home and attend school full time. The Wilson currently live at 3721 Chestnut Ridge Road, Montvale, New Jersey 07645, in a home they have owned since July 2008.

Richard and Anna provided over half of the support of Anna’s mother, Ruth Knapp, who currently lives in a nursing home in Mahwah, New Jersey. They also provided over half of the support of their son, Michael, who earned $4,750 during the summer as an accounting student intern for a national accounting firm.

b. Richard received a Form W-2 from his employer reporting the following information for 2019.

Richard M. Wilson, Social Security NO.294-38-6249

Gross wages and taxable benefits                                                                         $63,000

Federal income taxes withheld                                                                               11,400

F.I.C.A. taxes withheld:

Social security                                                                                                              3,906

Medicare                                                                                                                           914

State income taxes withheld                                                                                         1,850

The taxable benefits reported on his W-2 include $2,700 (based on the currently deductible standard auto mileage rate) for Richard’s personal use of the company car provided by his employer.

   

    

c. Anna operates her business under the name "Wilson's Travel Agency," located at 7200 Treeline Drive, Montvale, NJ 07645. Anna has one full-time employ- ee, and her Federal employer identification number is 74-2638596. Anna uses the cash method of accounting for her business, and her records for 2019 show the following: Fees and commissions . . $134,000 Expenses: Advertising . Bank service charges . Dues and subscriptions 1,425 75 560 Insurance.. 1,100 Interest on furniture loan. 960 Professional services. 700 Office rent... Office supplies.. 6,000 470 Meals and entertainment. 1,700 Payroll taxes 2,170 Utilities and telephone. 3,480 Wages paid to full-time employee. 22,800 Miscellaneous expenses. 20 Meals and entertainment expense of $1,700 included amounts spent for client development of $1,000 for meals and $700 for entertainment. Automobile expenses and amounts paid to her children are not included in the above expenses. Anna paid her daughters Lisa and Laura $750 and $450, respectively, for working part-time during the summer. Since she did not withhold or pay any Federal income or employment taxes on these amounts, Anna is not certain that she is allowed a deduction. She does feel that the amounts paid to her children were reasonable, however. Anna purchased a new 2018 Honda Accord on November 20 of last year, and her tax accountant used the actual cost method in determining the deduct- ible business expenses for her 2018 Federal tax return. Because the deductible amount seemed so small, she is not certain whether she should claim actual expenses (including depreciation), or simply use the automatic mileage meth- od. She has the following records relating to the business auto: Original cost .. Depreciation claimed in 2018 ($26,000 x 5% = 51,300 x 80% business use) . Gas, oil, and repairs in 2019 $26,000 1,040 1,790 Parking and tolls directly related to her work paid in 2019. 410 Insurance for 2019 650 Interest on car loan for 2019. 750 Anna drove the auto 20,000 miles for business purposes and 5,000 miles for personal purposes during the year. The above expenses for 2019 have not been reduced to reflect her personal use of the vehicle. On January 7, 2019, Anna purchased the following items for use in her business: Office furmniture. $8,900 Copying machine. . Dell notebook computer Printer.. 5,700 1,500 1,600 Fax machine 300 Anna wishes to claim the maximum amount of depreciation deductions or other cost recovery allowed on the office furniture and equipment.