John and Sandy Ferguson got married 20 years ago and have a 16-year-old daughter, Samantha. John retired from his previous employer last year. He received retirement benefits on Form 1099-R. During 2021, John started his own business as a web designer and earned revenue of $130,000 from various clients. He had expenses associated with his business (see detail below). Sandy worked part-time as a receptionist for a law firm (refer to Form W-2 for detailed information on her wages and withholding). They received qualified dividends, interest income, tax-exempt interest, and sold investments. They received various Form 1099s for interest, dividends, and capital transactions. They also received a $200 refund of their state income taxes from 2020, see Form 1099-G. The Fergusons always itemize their deductions, and their itemized deductions were well over the standard deduction last year. Assume the Fergusons did not receive an advance payment for the 2021 individual recovery credit because they are not eligible for the credit.

The Fergusons reported making the following payments during the year:

• State estimated tax payments of $4,400.
• Federal estimated tax payments of $25,000
• Mortgage interest (see Form 1098). The acquisition debt on their home was $500,000. They paid $3,560 of real estate taxes on their principal residence.
• Sandy paid and was reimbursed $600 for employee business expenses. She was required to provide documentation for her expenses to her employer.
• Paid $3,000 for interest on a home equity loan. The loan was used to pay for updates to their master bathroom.
• The $1,000 of investment expenses reported on Form 1099-DIV is 100% investment interest expense.
• Paid $1,245 of credit card interest during the year.
• Contributed $15,000 of cash/check to various public charities.
• Donated used furniture to Goodwill with a fair market value of $400 and an original cost of $2,000.
• Paid $12,000 of health insurance. Since Sandy only works part-time, she does not qualify for health insurance through her employer. They had no other medical expenses during the year.

Items associated with Johns web business:

• Their home is his principal place of business. He is a web designer and uses the cash method of accounting. He uses 400 square feet of their 3,200 square-foot home for business use only. He prefers to use the simplified method for the home office deduction.
• He used his personal auto for business purposes. He drove 15,600 miles during the year of which 4,680 were for business trips. He has adequate documentation for his mileage. He and Sandy have another vehicle available for personal use. He did not incur any parking fees or toll expenses. He prefers to use the standard mileage rate.
• John would like to utilize Sec. 179, if applicable, for any personal property purchases during the year.

John's web business incurred the following expenses during the year:

• Computer $2,000, placed in service in February.
• Software $1,000, placed in service in March.
• Business meals $325.
• Entertainment (basketball games with clients) $1,000.
• Office supplies $120.
• Advertising $3,120.
• Legal and professional services, start-up fees $4,000, incurred in January

They own a rental home located at 1342 S. 29th Avenue, Santa Fe, NM 87505. During the year they received $17,000 of rental income. They incurred the following expenses associated with the home: mortgage interest of $6,140; real estate taxes of $2,321; insurance of $453; management fees of $1,200; and repairs of $674. The rental home was purchased on July 3, 2015, for $320,000. Remember to calculate depreciation on the rental property. The Fergusons do not have any other passive activities.

Other information:

• The Fergusons live at 3300 W. Camelback Lane, Las Vegas, NM 87701.
• Johns social security number is 123-45-1234. Sandys social security number is 345-67-8345. Samanthas social security number is 678-99-1234.
• If there is an overpayment, the Fergusons would like it applied to next year.
• John materially participated in his web designer business during the year.
• The Fergusons did not materially participate in the management of their rental property.

The following forms are recommended for submission:

• Form 1040, pages 1 and 2
• Schedule 1
• Schedule 2
• Schedule A
• Schedule B
• Schedule C
• Form 8949 (optional)
• Schedule D
• Schedule E
• Schedule SE
• Schedule 8812
• Form 8995