David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a regional sales manager for Wren Industries, a national wholesaler of plumbing and heating supplies, and Ella is a part-time dental hygienist for a chain of dental clinics. David is classified by Wren as a statutory employee with compensation for 2014(based on commissions) of $95,000. He is expected to maintain his own office and pay for all business expenses from this amount. Wren does not require him to render any accounting as to the use of these funds. It does not withhold Federal and state income taxes but does withhold and account for the payroll taxesincurred (e.g., Social Security and Medicare). The Coles are adequately coveredby Wrens noncontributory medical plan but have chosen not to participate in its 401(k) retirement plan. Davids employment-related expenses for 2014 are summarized below: Airfare $8,800 Lodging 5,000 Meals (during travel status) 4,800 Entertainment 3,600 Ground transportation (e.g., limos, rental cars, and taxis) 800 Business gifts 900 Office supplies (includes postage, overnight delivery, and copying) 1,500 The entertainment involved business meals for purchasing agents, store owners, and building contractors. The business gifts consisted of $50 gift certificates to a national restaurant. These were sent by David during the Christmas holidays to 18 of his major customers. In addition, David drove his 2012 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2014. He purchased the Expedition on August 15, 2011, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2014. When the Coles purchased their present residence in April 2011, they devoted450 of the 3,000 square feet of living space to an office for David. The property cost $440,000 ($40,000 of which is attributable to the land) and has since appreciated in value. Expenses relating to the residence in 2014 (except for mortgage interest and property taxes; see below) are as follows: Insurance $2,600 Repairs and maintenance 900 Utilities 4,700 Painting office area; area rugs and plants (in the office) 1,800 In terms of depreciation, the Coles use the MACRS percentage tables applicable to 39-year nonresidential real property. As to depreciable property (e.g., office furniture), David tries to avoid capitalization and uses whatever method provides the fastest write-off for tax purposes. Ella works part-time as a substitute for whichever hygienist is ill or on vacation or when one of the clinics is particularly busy (e.g., prior to the beginning of the school year). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2014 appear below. Uniforms $690 State and city occupational licenses 380 Professional journals and membership dues in the AmericanDental Hygiene Association 340 Correspondence study course (taken online) dealing with teeth whitening procedures 420 Ellas salary for the year is $42,000, and her Form W2 for the year shows income tax withholdings of $4,000 (Federal) and $1,000 (state) and the proper amount of Social Security and Medicare taxes. Because Ella is a part-time employee, she is not included in her employers medical or retirement plans. Besides the items already mentioned, the Coles had the following receipts during2014. Interest income State of Colorado general purpose bonds $2,500 IBM bonds 800 Wells Fargo Bank CD 1,200 Federal income tax refund for year 2013 510 Life insurance proceeds paid by Eagle Assurance Corporation 200,000 Inheritance of savings account from Sarah Cole 50,000 Sales proceeds from two ATVs 9,000 For several years, the Coless household has included Davids divorced mother, Sarah, who has been claimed as their dependent. In late November 2014, Sarah unexpectedly died of coronary arrest in her sleep. Unknown to Ella and David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each). In 2013, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In2014, they sold the ATVs to their neighbor. Additional expenditures for 2014 include: Funeral expenses for Sarah $ 4,500 TaxesReal property taxes on personal residence $6,400 Colorado state income tax due (paid in April 2014 for tax year 2013) 310 Mortgage interest on personal residence 6,600 Paid church pledge 2,400 Contributions to traditional IRAs for Ella and David($5,500 each) 11,000 In 2014, the Coles made quarterly estimated tax payments of $1,400 (Federal) and$500 (state) for a total of $5,600 (Federal) and $2,000 (state). Part 1Tax Computation Using the appropriate forms and schedules, compute the Coless Federal income tax for 2014. Disregard the alternative minimum tax (AMT) and various education credits. Relevant Social Security numbers are: David Cole 123-45-6788 Ella Cole 123-45-6787 Sarah Cole 123-45-6799 The Coles do not want to contribute to the Presidential Election Campaign Fund. Also, they want any overpayment of tax refunded to them and not applied toward next years tax liability