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 self-employed consultant specializing in retail management, and Ella is a dental hygienist for a chain of dental clinics.

David earned consulting fees of $145,000 in 2019. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ellas employer but have chosen not to participate in its 401(k) retirement plan.

Davids employment-related expenses for 2019 are summarized below.

Airfare	$8,800
Lodging	4,615
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 taking clients to sporting and musical events. 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 clients.

In addition, David drove his 2017 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2019. He purchased the Expedition on August 15, 2016; David always has used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2019.

When the Coles purchased their present residence in April 2016, they devoted 450 of the 3,000 square feet (15%) 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 2019 (except for mortgage interest and property taxes; see below) are reported 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 at a variety of offices as a substitute when a 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 2019 are summarized below.

Uniforms	$690
State and city occupational licenses	380
Professional journals and membership dues in the American Dental
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.

In addition to those items already mentioned, the Coles had the following receipts during 2019.

Interest income.

State of Colorado general purpose bonds, 2,500 dollars.

I B M bonds, 800.

Wells Fargo Bank, 1,200,

4,500 dollars.

Federal income tax refund for year 2018, 510.

Life insurance proceeds paid by Eagle Assurance Corporation, 200,000.

Inheritance of savings account from Sarah Cole, 50,000.

Sale proceeds from two A T Vs, 9,000.

For several years, the Coles household has included Davids divorced mother, Sarah, who has been claimed as their dependent. In late December 2018, Sarah unexpectedly died. Unknown to Ella and David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each).

In 2018, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2019, they sold the ATVs to their neighbor.

Additional expenditures for 2019 include the following.

Funeral expenses for Sarah, 4,500 dollars.

Taxes.

Real property taxes on personal residence, 6,400 dollars.

Colorado state income tax due (paid April 2019 for tax year 2018), 310,

Total Taxes paid 6,710.

Mortgage interest on personal residence (Rocky Mountain Bank), 6,600.

Paid church pledge, 2,400.

Contributions to traditional I R As for Ella and David (6,000 dollars plus 6,000 dollars), 12,000 dollars.

In 2019, the Coles made quarterly estimated tax payments of $6,000 (Federal) and $500 (state) for a total of $24,000 (Federal) and $2,000 (state).