Diana and Dana Foley live in Plymouth, Vermont. Diana is 43 years old and the Vice-President of Operations at a small start-up company. Dana is 45 years old and a former human resource executive who currently consults with former clients. The Foleys have two children Rebecca (age 19) and Alan (age 16). Rebecca does not work and is a full-time college student. Alan is a high school student and works for a local hardware store during the summer and earned $6,500 in 2020.   

The Foleys plan to file a joint tax return and provided the following information:

• Diana’s social security number is 201-33-4444
• Dana’s social security number is 301-44-5555
• Rebecca’s social security number is 401-55-6666
• Alan’s social security number is 501-66-7777
• Mailing address is 23 Brewster Street, Plymouth, Vermont 00403

Diana Foley reported the following information relating to employment during the year:

Employer	Gross Wages	Federal Income Tax Withholding	State Income Tax Withholding
Alternative Energy	$139,325	$26,230	$8,500

Diana’s employer withheld all payroll taxes it was required to withhold. The entire Foley family was covered by minimum essential health insurance during each month in 2020. The insurance was provided by Diana’s employer.

In May, Diana was injured in an accident. The injury prevented Diana from working for about two months. During this time, Diana received $15,000 in disability payments attributable to a disability insurance policy. The disability policy premiums were paid by Diana’s employer as a nontaxable fringe benefit.

Dana Foley uses the cash method to account for business activities, which were as follows:

Consulting revenue was reported to Dana on a Form 1099-MISC, Box 7

              Hightop Products                          $32,000

              Jensen’s Health Services              $8,500

              Strategic Solutions                        $4,750

During the year, Dana paid the following business expenses:

Office expenses                             $520

Professional license fees              $375

Airfare                                             $2,900

Hotel                                                $1,200

Meals                                               $390                   

Parking                                            $320

Dana has a small office area (150 square feet) in the home and uses the simplified method to determine the home office deduction. The total square footage of the Foley’s home is 2,200.   

Dana drove 520 business miles for consulting-related activities. Dana drove a 2017 Toyota purchased on January 1, 2017 for all business mileage. Dana drove the vehicle a total of 10,305 miles during the year for all purposes. Dana has written documentation to support the mileage amounts and also has access to another vehicle for personal purposes.

Dana made the following estimated tax payments in 2020: $4,000 for Federal income taxes and $2,000 for state income taxes.

Dana is a 20% owner in an advertising agency named Natural Ideas, Inc. (“NI”) (EIN 89-1234567). NI is a Subchapter S corporation. The company reported ordinary business income for the year of $140,000. Dana received a K-1 from NI reporting allocation of this business income. Dana acquired the stock several years ago. Dana’s basis and at-risk amount in the stock before considering the 2020 income allocation was $52,000. Dana is a passive owner with respect to this entity.

Dana is also a 20% owner in Super Shine, Inc. (“SS”) (EIN 21-9876543). SS is a Subchapter S corporation. The company reported an ordinary business loss for the year of ($80,000). Dana received a K-1 from SS reporting allocation of this business loss. Dana acquired the stock several years ago. Dana’s basis and at-risk amount in the stock before considering the 2020 loss allocation was $35,000. Dana is a passive owner with respect to this entity.   

The Foleys also received the following investment income during the year:

Interest income from First Bank of Vermont                                     $320

Interest income from Plymouth, VT School District Bond               $200

Interest income from U.S. Treasury Bond                                          $1,750

Qualified dividends income from Microsoft                                      $2,350

Dividend income (not qualified) from Rio Grande Fund                  $2,150

The Foleys 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 Foleys had the following activity in their brokerage account during the year. All transactions were reported on a Form 1099-B and basis information on each stock sale was reported to the IRS.

Sold 2,000 shares of Microsoft                               7/7/20                             $22,500

Sold 100 shares of Apple, Inc.                                 4/4/20                              $35,750

Sold 150 shares of Union Pacific                              6/6/20                              $2,750

Relevant tax basis/holding period information related to sales of securities in the current year:

Purchased 2,000 shares of Microsoft on 5/5/20 for $21,000

Purchased 200 shares of Apple, Inc. on 3/3/15 for $86,000

Purchased 300 shares of Union Pacific on 9/9/19 for $6,000

The Foleys paid the following expenses during the year:

Dentist (unreimbursed by insurance)                                                               $1,500

Doctors (unreimbursed by insurance)                                                              $ 2,425

Prescriptions (unreimbursed by insurance)                                                     $675

Real property taxes on residence                                                                      $6,525

Vehicle property tax based upon value                                                            $850

Mortgage interest on principal residence                                                        $12,050

Margin interest paid on brokerage account loan                                           $500

Fee paid to Mouser, Johnson, and Hintze CPAs for tax preparation              $1,200

Contribution to United Way                                                                               $2,000

Contribution to American Cancer Society                                                        $5,000

The Foleys also donated clothing, electronics, furniture and other household goods to the Salvation Army of Plainville, Vermont on April 15, 2020. The Foleys estimated that their cost of donated items was $5,000. Estimated thrift value of the goods donated was $375.

During the year, the Foleys paid a portion of Rebecca’s tuition to attend The College of Liberal Arts (CLA). They also purchased Rebecca’s school books. Rebecca attended Fall20 semester as a full-time student. In total, the Foleys paid $9,000 for tuition and $2,000 for books. Rebecca used $6,000 from a scholarship received from CLA to pay the remaining $6,000 of tuition for the year. Rebecca was not required to perform any services as a condition of accepting the scholarship.