Jeff (52) and Cherie (51) Smith live in Georgia. Jeff has a small business in addition to other investments. Jeffss business in which he devotes much of his time is an online health and wellness coaching website, including personal trainers, nutrition, and overall wellness coaching. Cherie has a passion for politics and is an outspoken activist. Jeff and Cherie donate regularly to political causes, but Cherie has not run for political office. They have three grown children and one child, Samantha (16), who still lives at home with them.

Jeff had income from his business of $310,000 in 2018. It is all self-employment income. The business is structured as an LLC, so this is Jeffs distributive income from the business after all benefits had been paid out to the employees. He employs three employees, most of which are family members. Jeff contributed the maximum possible to his SEP IRA.

Additionally, Jeff and Cherie live in a nice house. Jeff believes in being as leveraged as possible so that he can put more money into his business development ventures. He has a mortgage of 1.2 million dollars on his primary residence. His mortgage currently has an interest rate of 4.5% and he paid $55,000 in interest in 2018. Property taxes were $30,000 and state income taxes paid were $35,000. Jeff has private health insurance for which he pays $18,000 per year. He also owns land for investment purposes. The land has a loan against it for $380,000. Clarks basis in the land is $300,000. He paid $25,000 in interest on the loan in 2018 and property taxes of $6,000 on the land.

During 2018 Jeff and Cherie gave $50,000 to their church and also gave $20,000 to political candidates. Jeff had also made a loan to his brother who wanted to start a dental practice in Utah. The loan was for $175,000 at 5% over 10 years. Jeffs brother had made the first 30 payments, but was not successful with the dental practice in Utah (Utah has the highest per capita number of dentists in the country). His brother has since moved to Alaska, where dentists are paid better and is working to get caught up on his student loans. Jeffs brother lost his house in Utah to foreclosure and also lost the business (filed Chapter 7 bankruptcy, but did not include Jeffs loan in the bankruptcy filing). Jeff has discussed the debt with is brother, but knows that he cannot pay back the debt in the foreseeable future. He is uncertain how to handle this. In 2018, Jeffs brother made one payment before filing for bankruptcy (30^thpayment) and moving to Alaska.

Cherie and Samantha volunteer at the childrens hospital. This year Cherie and Samantha purchased a therapy dog to work with the children when they volunteer. The dog cost $20,000. Cherie and Samantha own the dog, but they take each time they go to the hospital. They have also been invited to come with their dog to domestic abuse shelters to play with the children. They make two visits per week. They have good records of their visits because they deduct their mileage to and from the locations as charitable deductions. They are wondering if they can deduct the cost of the dog for charitable purposes. Depending on your answer, they are wondering if there are any other options to deduct the cost of the dog.

In a 1 2 page letter to the Smiths, please communicate to them their current tax situation giving them specific guidance on any uncertain matters. Also let them know what changes they could make for the coming year to improve their tax situation.