Attached is the 2020 tax information for Carlos and Maria Gomez. A staff member of the accounting firm has prepared the tax return and posted it to Canvas but I am not sure that the person did it correctly. I need your help and ask that you please review the tax return by comparing it to the tax information that the Gomezs have provided us. Please perform the following:

1. Please review the tax return and cite all errors and explain a Word document how to correct the error that was made. 2. What is the Gomezs marginal tax rate? 3. Maria is considering contributing $5,000 to a traditional IRA. How much tax savings would they realize if she made this IRA contribution? What would be the after-tax cost of the $5,000 traditional IRA contribution?

Tax Information Carlos and Maria Gomez live in Lubbock, Texas. The Gomezs have two children: Luis (age 14) and Amanda (age 12). Both children qualify as federal income tax dependents of Carlos and Maria. The Gomezs provided the following information:

Carlos social security number is 254-49-3534 Marias social security number is 265-24-8454 Luis social security number is 589-24-8432 Amandas social security number is 599-74-8733 The Gomezs current mailing address is 543 West La Patera, Lubbock, Texas 79401

Carlos is a civil engineer. For the first two months of the year, he was employed by West Texas Engineering (WTE). However, he resigned his position with WTE to start his own engineering firm called Gomez Professional Engineers (GPE). GPE is conducted as a sole proprietorship with Carlos being the sole owner. GPE started business on January 1, 2020 and is located at 1515 West Industrial Road Lubbock, Texas 79401 (EIN 20-1616167). Maria is self-employed as a part-time bookkeeper.

Carlos provided the following W-2 from WTE.

Carlos reported the following information for GPEs business activities (GPE uses the cash method of accounting):

Revenues: Credit card receipts $352,000 Cash receipts 648,000 Total revenue $1,000,000

Expenses: Advertising $5,450 Insurance-professional 15,750 Office building rent 62,000 Equipment leases 6,050 Travel 14,200 Meals and entertainment 2,980 Wages 498,725 Taxes and licenses 44,875 Employee health insurance 42,000 Employee benefit programs 14,500 Utilities 37,425 Office supplies 18,900 Legal and professional fees 15,550 Repairs and maintenance 10,000 Total Expenses $ 788,400

GPE purchased and placed in service the following fixed assets in 2020:

Item Date Purchased Amount Laptop computers March 1 $20,500 Printers June 1 $6,500 Office furniture October 10 $19,000

GPE does not want to claim any Section 179 expensing on any of these assets, but would like to take bonus depreciation, if available, on all the assets.

Carlos worked part-time on GPE business activities until he finished his employment with WTE early in the year. Carlos worked full-time on GPE business activities for the rest of the year.

GPE filed Forms 1099-MISC and 1099-NEC for payments made to contractors when required to do so. His business is not a specified service business for purposes of the Qualified Business Income Deduction.

Carlos and Maria paid $22,000 for health insurance for his family (for the time he was working at GPE). This amount is not included in the GPE expenses listed above. Neither Carlos nor Maria had access to employer-provided health insurance during the year while they were paying the premiums for this policy. The entire Gomez family was covered by minimum essential health insurance during each month in 2020.

Carlos business, and therefore his personal income, suffered during the COVID-19 pandemic in the first half of 2020. Due to this financial hardship, in May, Carlos withdrew $20,000 from his 401(k) account. He elects NOT to spread the taxable amount over 3 years but to pay any tax liability associated with this withdrawal in 2020. Carlos received the following Form 1099-R:

In addition, Carlos has established a SEP-IRA (self-employed retirement plan) using his business earnings from GPE. He would like to make the maximum deductible contribution to this plan for 2020. Assume that Carlos will file his tax return by April 15, 2021 and Carlos will contribute to his SEP IRA the full amount allowable by the date he files the return.

Maria received the following Form 1099-NEC from her bookkeeping activities for her largest client:

Maria received an additional $4,000 from clients who were not required to issue Maria a Form 1099-NEC.

During the year, Maria paid the following business-related expenses:

Paper $365 Toner $450 Meals $580

Maria purchased and placed in service the following fixed assets for her business in 2020:

Item Date Purchased Amount New laptop computers March 1 $1,850 New laser printers March 1 $ 840 New computer software April 2 $ 400

Maria would like to recover the cost of these business assets as soon as possible through Section 179 expensing. Maria owns a 2017 Acura. She started to use the Acura for her business on January 1, 2019. She drove 2,050 business miles during 2020 (she has documentation to verify). She drove the vehicle for a total of 10,000 miles during the year (7,950 personal miles). She also has access to another vehicle that she can use for personal purposes.

Maria started her bookkeeping service in 2017 and she uses the cash method of accounting. She is the only person performing services in the business. She did not make any payments that would have required her to file a Form 1099.

Marias business is a specified service business for purposes of the Qualified Business Income Deduction.

On January 3, 2020, the Gomezes sold their prior principal residence. They purchased that residence on January 31, 2015 and had lived there full-time until they sold it this year. They originally purchased the home for $310,000. The Gomez family has never claimed any tax depreciation (nor were they allowed to) on the home. The sales price of the home was $405,000. The home is located at 45 East Entrada Trail, Lubbock Texas 79401.

The Gomez family purchased (and moved into) their current residence at 543 West La Patera, Lubbock, Texas 79401 on January 4, 2020. The La Patera residence is 2,000 square feet. The purchase price of the residence was $500,000 (building value was $350,000 and the lot value was $150,000). The mortgage on the purchase was $300,000. Expenses relating to the La Patera residence were as follows:

Property taxes $10,750 Utilities $3,000 Insurance $2,000

Maria utilized a room in the La Patera home for her bookkeeping business. The room was used exclusively on a regular basis as Marias principal place of business. Maria wants to maximize her home office deduction related to this use. The room she uses is 200 square feet.

In the summer of 2020, the Gomez family rented out the La Patera residence to another family. The La Patera residence is situated along the ninth green of the famous Lubbock Country Club (LCC). The LCC hosted the U.S. Senior Open golf tournament this year. The Gomez family rented their residence to a golfer participating in the event for $1,200 per day for 10 days (the home office remained locked and off limits to the renters, however). During this time the Gomez family went on vacation touring the west coast of the United States. The Gomez family incurred $1,500 of cleaning and other expenses associated with the 10-day rental period.

Maria purchased a condominium on September 15, 2020 in Lubbock that was valued at $160,000. The building was valued at $120,000 and the land was valued at $40,000. The condominium is located at 990 El Mar, Unit A, Lubbock Texas 79401.

Maria first rented out the El Mar unit on October 1, 2020. The revenue and expenses from the rental unit from October through December are as follows:

Rental revenue $3,600 HOA fee expense $300 Property taxes paid $225 Utilities expense $350

No Form(s) 1099 were required to be filed for this rental. Maria is not considered an active participant and the rental activity does not produce Qualified Business Income.

The Gomezes also received the following Forms 1099 for the year:

The Grand Junction City bond was issued in 2016.

The Lubbock Texas School District bond was issued in 2016.

The Gomezes did not own, control, or manage any foreign bank accounts, nor were they grantors or beneficiaries of a foreign trust during the tax year.

The Gomezes paid the following expenses during the year (in addition to the personal residence-related items listed above):

Dentist (unreimbursed by insurance) $ 500 Doctors (unreimbursed by insurance) $1,750 Prescriptions (unreimbursed by insurance) $ 425 Personal vehicle property tax based upon value $ 1,950 Contribution to qualified charities $9,500

The Gomezes did not pay any state income taxes during the year.

Other Information

The Gomezes made timely federal estimated tax payments for 2020 as follows:

April 15, 2020 $7,000 June 15, 2020 $7,000 September 15, 2020 $7,000 January 15, 2021 $7,000

The Gomezes want to contribute to the Presidential Election Campaign Fund. The Gomezes would like to receive a refund (if any) of tax they may have overpaid for the year. Their preferred method of receiving the refund is by check.

During 2020, the Gomezes did not receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency, and are not eligible for the Rebate Recovery Credit.