ACC$403$

Tax Retur

Salvatore A$.$ Szczepanek, III is married to Sabrina B$.$ Szczepanek and they file a joint return. They have been married for $35$ years and have filed a joint return each of those years. They live at $3597$ Shooting Range Road, Albuquerque, NM $87116.$ Salvatore is employed as a financial consultant with Dewey, Cheatum & Howe, a regional CPA firm. Sabrina owns and operates a mobile pet grooming business. Salvatore maintains qualified health insurance coverage through his employer for the entire year for both himself and his spouse. Salvatore is age $62$ on $12/31/2022,$ while Sabrina is age $61$ on $12/31/2022.$ Salvatore and Sabrina have two adult children who live on their own and fully support themselves. Salvatore$$s social security number is $147-35-5687,$ while Sabrina$$s social security number is $174-64-4576.$ Sabrina wants to contribute $$3$ to the Presidential Election Campaign Fund, but Salvatore does not.

The following information is shown on Salvatore$$s $2022$ Wage and Tax Statement $($Form W$-2)$ that he received from his employer. $($Sabrina is self$-$employed and thus does not receive a Form W$-2$ for $2022.)$

$$Line$$Description$$

$1$Wages$,$ tips, other compensation$$ $$119,000$

$2$Federal income tax withheld$17,300$

$17$State income tax withheld$3,500$

$19$Local income tax withheld$1,000$

Salvatore and Sabrina received a $$2,300$ income tax refund from the state of New Mexico on June $10,2022.$ On their $2021$ Federal income tax return, they reported total itemized deductions of $$26,500,$ which included a $$4,100$ state income tax deduction. In addition, Salvatore and Sabrina applied their $2021$ refund of federal income taxes of $$400$ toward their $2022$ tax liability. If they are owed a refund for $2022,$ they want the first $$300$ applied to their $2023$ federal income tax. Any additional refund they want deposited directly into their checking account. The checking account number is $9638257410,$ and the bank$$s routing number is $031000011.$

During the summer, while on vacation in San Clemente, California, Sabrina entered a beauty pageant. She won the competition and was crowned Mrs$.$ Southern California $2022.$ As a result, she received a cash prize of $$3,400.$

For nearly $20$ years, Sabrina worked as an insurance claims adjuster. However, during March $2021,$ she had an argument with her boss and decided to quit the insurance business and start a mobile pet grooming company. She calls her company Sabrina$$s Fabulous Mobile Pet Grooming.

During the period April $2021$ October $2021,$ Sabrina spent $$53,000$ exploring the feasibility of starting the mobile pet grooming business. She elected to deduct as much of the $$53,000$ as she was entitled to deduct. Sabrina started her new business on $11/1/2021.$ During $2022,$ she received cash payments totaling $$96,000$ from customers, and paid the following expenditures in connection with her business:

$$Cost of a new van, modified for pet grooming capabilities $(5-$year property$)$ $$60,000$

$$Cost of new equipment $(7-$year property$)15,000$

$$Cost of new tools $(5-$year property$)5,000$

$$Supplies$4,000$

$$Advertising fees$3,000$

$$Liability insurance premiums$2,000$

The van is only suitable for business usage and is thus not considered to be a $$passenger auto$.$ For the van, Sabrina elected not to expense any portion of the cost allowed under the provisions of $179,$ but rather elected to take the maximum allowed depreciation. For the new equipment, Sabrina elected to take the maximum $179$ expense allowed. For the new tools, Sabrina elected to take MACRS depreciation rather than either $179$ expense or additional first$-$year $($bonus$)$ depreciation. The van, plus the new equipment, plus the new tools, were placed into service on $2/1/2022.$ The van, equipment, and tools are used exclusively for business purposes.

Sabrina operates her mobile pet grooming business out of the couple$$s garage, which totals $720$ square feet, while the house, including the garage, totals $4,000$ square feet. She uses the garage to store business supplies and to repair equipment. The garage is also used to park a personal automobile and to store personal items. Sabrina estimates that half of the garage is used exclusively on a regular basis in the operation of Sabrina$$s business. During January, Sabrina paid a painter $$400$ to paint the entire garage. Sabrina uses the cash basis to account for revenues and expenses.

On $11/1/2021,$ the date Sabrina started her business, Salvatore and Sabrina had an adjusted basis in their primary residence of $$550,000.$ This amount included $$400,000$ for the dwelling, and $$150,000$ for the land. The fair market values on $11/1/2021$ equaled the adjusted basis amounts. During $2022,$ Salvatore and Sabrina made the following payments associated with their primary residence in Albuquerque:

$$Property taxes$$ $$2,000$

$$Property insurance$1,500$

$$Utilities$1,000$

Salvatore and