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 2021. 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 2021 are summarized below. Airfare $8,800 Lodging 4,835 Meals from restaurants (during travel status) 2,400 Entertainment 3,600 Ground transportation (e.g., limos, rental cars, and taxis) 800 Business gifts 900 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 2019 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2021. He purchased the Expedition on August 15, 2018, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2021. When the Coles purchased their present residence in April 2018, they devoted 450 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 2021 (except for mortgage interest and property taxes; see below) are as follows: 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). Office supplies (includes postage, overnight delivery, and copying) 1,500 Insurance $2,600 Repairs and maintenance 900 Utilities 4,700 Painting office area; area rugs and plants (in the office) 1,800 Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2021 appear below. 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. Besides the items already mentioned, the Coles had the following receipts during 2021. For several years, the Coles household has included Davids divorced mother, Sarah, who has been claimed as their dependent. In late December 2020, Sarah unexpectedly died of a heart attack 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 2020, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2021, they sold the ATVs to their neighbor. Additional expenditures for 2021 include: 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 Ella's salary for the year is $42,000 and her form W-2 for the year shows income tax whihholding of $40,000 (federal ) and $1,000 (state) and the proper amount of social security and Medicare Taxes. Besides the items already mentioned, the Coles had the following receipts during 2021, Interest income_ State of colorado general purpose bonds $2,500, IBM Bonds $800, Wells Fargo Bank $1200, $4,500. Federal Income tax return paid for year 2020 $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 Coles household has included Davids divorced mother, Sarah, who has been claimed as their dependent. In late December 2020, Sarah unexpectedly died of a heart attack 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 2020, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2021, they sold the ATVs to their neighbor. Additional expenditures for 2021 include: Funeral Expenses for Sarah $4,500, Taxes $6,400, Colorado state income tax due (paid in april 2021 for tax year 2020) $310,, $6710, Mortgage interest on personal residence (Rocky Mountain Bank) $6,600, Contributions to traditional IRAs for Ella and David ($6,000+$6000) =$12,000 Details In 2021, 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). Using the appropriate forms and schedules, compute the Coles Federal income tax for 2021. Disregard the alternative minimum tax (AMT) and various education credits since these items are not discussed until later in the text (Chapters 12 and 13). Relevant Social Security numbers are: David Cole 123-45- 6788 Ella Cole 123-45- 6787 The Coles have never owned or used any virtual currency. The Coles received the appropriate coronoavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored. They do not want to contribute to the Presidential Election Campaign Fund. Also, the Coles want any overpayment of tax refunded to them and not applied toward next years tax liability. David will have a self-employment tax liability; refer to Exhibit 13.9 in Chapter 13 to compute this liability. Suggested software: ProConnect Tax. Tax Computation Problem Saanvi Patel (Social Security number 123-45-6785), single and age 32, lives at 3218 Columbia Drive, Spokane, WA 99210. She is employed as a regional sales manager by VITA Corporation, a manufacturer and distributor of vitamins and food supplements. During 2022, Saanvi is paid an annual salary of $83,000 and a separate travel allowance of $30,000. In order to access the travel allowance, VITA requires adequate accounting by Saanvi. Details David Cole 123-45- 6788 Ella Cole 123-45- 6787 The Coles have never owned or used any virtual currency. The Coles received the appropriate coronoavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored. They do not want to contribute to the Presidential Election Campaign Fund. Also, the Coles want any overpayment of tax refunded to them and not applied toward next years tax liability. David will have a self-employment tax liability; refer to Exhibit 13.9 in Chapter 13 to compute this liability. Suggested software: ProConnect Tax. Tax Computation Problem Saanvi Patel (Social Security number 123-45-6785), single and age 32, lives at 3218 Columbia Drive, Spokane, WA 99210. She is employed as a regional sales manager by VITA Corporation, a manufacturer and distributor of vitamins and food supplements. During 2022, Saanvi is paid an annual salary of $83,000 and a separate travel allowance of $30,000. In order to access the travel allowance, VITA requires adequate accounting by Saanvi. Details David Cole 123-45- 6788 Ella Cole 123-45- 6787 Saanvi participates in VITAs contributory health and 401(k) plans. During 2022, she paid $4,500 for her share of the medical insurance and contributed $11,000 to the 401(k) retirement plan. Saanvi uses her automobile 70% for business and 30% for personal. The automobile, a Toyota Avalon, was purchased new on June 30, 2020, for $37,000 (no trade-in was involved). Depreciation has been claimed using the MACRS 200% declining-balance method, and no 179 election was made in the year of purchase. (For depreciation information, see text Section 8-3d.) During 2022, Saanvi drove 15,000 miles and incurred and paid the following expenses relating to the automobile: Gasoline $3,100 Insurance 2,900 Auto club dues 240 Interest on car loan 1,100 Repairs and maintenance 1,200 Parking (during business use) 600 Traffic fines (during business use) 500 Because VITA does not have an office in Spokane, the company expects Saanvi to maintain one in her home. Out of 1,500 square feet of living space in her apartment, Saanvi has set aside 300 square feet as an office. Expenses for 2022 that relate to her home office are listed below. Apartment rent $18,000 Apartment utilities 4,000 Saanvis employment-related expenses for 2022 (except for the trip to Korea; discussed next) are summarized below. Most of Saanvis business trips involve visits to retail outlets in her region. Store managers and their key employees, as well as some suppliers, were the parties entertained. The business gifts were boxes of candy costing $30 ($25 each plus $5 for wrapping and shipping) sent to 18 store managers at Christmas. The continuing education was a noncredit course dealing with improving management skills that Saanvi took online. In July 2022, Saanvi traveled to Korea to investigate a new process that is being developed to convert fish parts to a solid consumable tablet form. She spent one week checking out the process and then took a one-week vacation tour of the country. The round-trip airfare was $3,600, and her expenses relating to business were $2,100 for lodging ($300 each night), $1,470 for meals, and $350 for transportation. Upon returning to the United States, Saanvi sent her findings about the process to her employer. VITA was so pleased with her Apartment insurance (renters casualty and theft coverage) 1,600 Carpet replacement (office area only) 1,200 Saanvis employment-related expenses for 2022 (except for the trip to Korea; discussed next) are summarized below. Airfare $4,100 Lodging 3,200 Meals (at local restaurants during travel) 2,800 Transportation (taxis and airport limos) 300 Business gifts 540 Continuing education 400 Professional journals 140 Most of Saanvis business trips involve visits to retail outlets in her region. Store managers and their key employees, as well as some suppliers, were the parties entertained. The business gifts were boxes of candy costing $30 ($25 each plus $5 for wrapping and shipping) sent to 18 store managers at Christmas. The continuing education was a noncredit course dealing with improving management skills that Saanvi took online. In July 2022, Saanvi traveled to Korea to investigate a new process that is being developed to convert fish parts to a solid consumable tablet form. She spent one week checking out the process and then took a one-week vacation tour of the country. The round-trip airfare was $3,600, and her expenses relating to business were $2,100 for lodging ($300 each night), $1,470 for meals, and $350 for transportation. Upon returning to the United States, Saanvi sent her findings about the process to her employer. VITA was so pleased with her Apartment insurance (renters casualty and theft coverage) 1,600 Carpet replacement (office area only) 1,200 Airfare $4,100 Lodging 3,200 Meals (at local restaurants during travel) 2,800 Transportation (taxis and airport limos) 300 Business gifts 540 Continuing education 400 Professional journals 140 report that it gave her an employee achievement award of $10,000. The award was sent to Saanvi in January 2023. Besides the items already mentioned, Saanvi had the following receipts in 2022: interest income : city of tacoma general purpose bonds 350, Olympia sate bank 400, 750 proceeds from proeprty sales: City lot 13000, Sailboat 18000, 31000 Cash found at airport 5000 Regarding the city lot (located in Vancouver), Saanvi purchased the property in 2007 for $16,000 and held it as an investment. Unfortunately, the neighborhood where the lot was located deteriorated, and property values declined. In 2022, Saanvi decided to cut her losses and sold the property for $13,000. The sailboat was used for pleasure and was purchased in 2018 for $16,500. Saanvi sold the boat because she purchased a new and larger model (see below). While at the Spokane airport, Saanvi found an unmarked envelope containing $5,000 in $50 bills. Because no mention of any lost funds was noted in the media, Saanvi kept the money. Saanvis expenditures for 2022 (not previously noted) are summarized below. Medical (not covered by insurance) $6,000 State and local general sales tax 3,300 Church pledge (2022 and 2023) 5,600 Fee paid for preparation of 2021 income tax return 500 Contribution to mayors reelection campaign fund 200 Contribution to a Coverdell education savings account (on behalf of a favorite nephew) 2,000 Saanvi keeps careful records regarding sales taxes. In 2022, the sales tax total was unusually high due to the purchase of a new sailboat. In 2022, Saanvi decided to pay her church pledge for both 2022 and 2023. The insurance premium was on a policy covering her fathers life. (Saanvi is the designated beneficiary under the policy.) Saanvis employer withheld $8,600 for Federal income tax purposes, and she applied her $600 overpayment for 2021 toward the 2022 tax liability. Compute Saanvis Federal income tax payable (or refund) for 2022. In making the calculation, use the Tax Rate Schedule and disregard the application of the alternative minimum tax (AMT), which is not discussed until Chapter 12