Matthew B. (age 42) and Courtney S. (age 41) Mumford are married and live at 11426 W.

Antelope Drive, Sioux Falls, SD 57107. Matthew is the manager for The Pour House, a

popular bar and grill in Sioux Falls. Courtney is a self-employed architect. They are calendar

year, cash basis taxpayers.

1. Matthews annual salary from The Pour House is $98,000. He also earns an annual

bonus. The amount is determined in late December based on performance during the

year and is paid in January of the following year. Matthews 2022 bonus was $6,000

(received in 2023), and his 2022 bonus is $7,000 (to be received in 2023). Matthew

participates in his employers group health insurance plan to which he contributed

$7,200 in 2023 for medical coverage. These contributions are made with after-tax

dollars. The health plan covers Matthew, Courtney, and their two dependent children.

The Pour House does not provide any retirement benefits, but it has established a

401(k) plan to enable its employees to save for retirement. Matthew contributed

$19,000 to the plan in 2023. Matthew commutes to and from work 6 days a week (a

roundtrip of 18 miles) in the family SUV. During 2023, Matthew drove the SUV a

total of 12,700 miles.

2. Courtney is a licensed architect who works part time as an architectural consultant.

Her major clients are real estate developers (both residential and commercial) for

whom she prepares structural designs and construction plans. She also advises on

building code requirements regarding the renovation and remodeling of existing

structures. Courtney does some of her work at client locations and the remainder in

her office at home (see item 3 below). Courtney collected $72,000 in consulting fees

during 2023. This total includes a $3,000 payment for work she performed in 2022

and does not include $5,000 she billed in December for work performed in late 2023.

In addition, Courtney has a $6,400 unpaid invoice for work done in 2021. This client

was convicted of arson in August 2022 and is now serving a 5-year sentence in a state

prison. Courtney feels certain that she will never collect the $6,400 she is owed.

Her business expenses for 2023 are as follows:

Drafting supplies $5,800

Reproduction materials (e.g., molds, models, photos, blueprints, copies) 4,200

On-site work clothing (e.g., hip boots, safety glasses, safety helmet) 860

Professional license fee 400

Subscriptions to professional journals 250

Dues to professional organizations 240

In addition, Courtney drove Acura (purchased on June 7, 2022) 940 miles on her job

assignments. She uses the standard mileage method to deduct business costs related to

the Acura. During 2023, Courtney drove the car a total of 10,000 miles.

3. When the Mumfords purchased their home for $200,000 on February 2, 2021, they set

aside 300 square feet (out of a total of 2,400 square feet) of living space for

Courtneys office. The Mumfords would like to deduct the maximum amount

available for the home office expenses. Relevant information concerning the

residence for all of 2023 appears below.

Homeowners insurance $3,200

Repairs and maintenance 1,800

Utilities 6,200

Painting (office area only) 1,250

The cost of Courtneys office furniture and equipment was previously deducted under

179 in the years these assets were acquired. On June 29, 2023, she purchased a

fireproof file cabinet for $800 to safeguard the blueprints of her structural designs and

construction plans. Whenever possible, Courtney prefers to avoid depreciating capital

expenditures over time.

4. One of Courtneys clients was interested in building a shopping center on a tract of

land she owned in Lincoln County. Courtney inherited the property from her uncle

when he died on June 6, 2002. At that time, the land was valued at $40,000. It has

since been rezoned for commercial use and has a current value of $200,000. On

February 10, 2023, Courtney exchanged the Lincoln parcel for a similar tract in

Minnehaha County worth $190,000 and cash of $10,000.

5. On September 2, 2023, Courtney sold a tract of land in McCook County to a farmer

who owned the adjoining property. The land was inherited from the same uncle who

died in 2002 and was valued at $30,000 on June 6, 2002. Under the terms of the sale,

Courtney received cash of $100,000.

6. In early 2022, Matthew learned that one of the restaurants best servers, Mindy Smith,

was suffering domestic abuse at the hands of her husband Billy. When Billy started to

abuse their 5-year-old daughter as well, Mindy decided it was time to leave. Before

they left on April 14, 2022, Matthew loaned Mindy $5,500 to help her relocate with

her daughter. Matthew had her sign an interest-free note due in 1 year. Matthew never

heard from Mindy again. In late 2023, Matthew learned that Billy tracked Mindy and

their daughter down and killed both of them before committing suicide. Given these

tragic circumstances, Matthew has no expectation that the loan will ever be repaid.

7. On December 5, 2022, Matthew purchased 1,000 shares of Farmers Markets America

(FMA) common stock for $16 a share as part of its initial public offering. The

corporation was formed to establish and operate farmers markets in mid-size cities

throughout the United States. Although some market locations were profitable, the

venture as a whole proved to be a failure. In November 2023, FMAs remaining assets

were seized by its creditors, and FMA stock became worthless.

8. In addition to the items previously noted, the Mumfords had the following receipts for

2023:

Interest income from:

General Motors corporate bonds $1,900

City of Sioux Falls, SD bonds 1,400

Castle Bank certificate of deposit 210 $3,510

Qualified dividends from MG&E Inc. 3,100

Refund from HomeStuff 430

Loan repayment by Sarah Mumford-Caine 4,500

Cash gifts from Courtneys parents 32,000

2022 Federal income tax refund 290

In December 2022, the Mumfords made a major purchase of household items (e.g.,

appliances, furniture, etc.) at HomeStuff. They called the manager when they realized

they did not receive the advertised sale price. Consequently, the store corrected the

mistake and sent a $430 refund to the Mumfords in January 2023.

Four years ago, Matthew lent his sister Sarah $4,000 to help pay for a honeymoon trip

following her wedding to John Caine. Sarah paid him back the $4,000 on December

20, 2023.

On March 20 of each year, Courtneys parents sent a generous gift of cash as a

birthday present. Just as she has done for the past 7 years, Courtney immediately

invested the cash in her childrens 529 college savings plans.

9. The Mumfords had the following expenditures for 2023:

Net gambling loss 1,000

Life insurance premiums 2,700

Medical and dental expenses not covered by insurance 16,612

Taxes:

Ad valorem taxes on personal residence $4,100

State and local sales taxes from receipts 2,800 6,900

Interest on home mortgage reported on Form 1098 4,000

Cash contributions:

Feeding South Dakota $1,750

South Dakota governors election campaign fund 300 2,050

The $1,000 net gambling loss for 2023 is the difference between the Mumfords

gambling winnings of $1,200 and losses of $2,200. The life insurance premiums

relate to the universal life insurance policies that Matthew and Courtney own. The

first beneficiary on both policies is the other spouse, with the second beneficiaries

being the children. Included in the medical expenses are $1,200 incurred in 2022,

which were paid in early February 2023. While South Dakota does not impose income

taxes on individuals, it does impose sales taxes. The Mumfords can substantiate the

$2,800 in sales taxes paid based on their purchase receipts for the year. The local sales

tax rate in Sioux Falls is 2%. Courtney contributed to the governors campaign fund

because she thinks her influence was key in getting the Minnehaha County land

rezoned for commercial use (see item 4 above).

10. The Mumfords maintain a household that includes their two children, Nickolas (age

16) and Kaleigh (age 19). Nickolas is a junior in high school and a talented wrestler.

In hopes of competing at the state tournament, all of his free time is consumed with

weight training and wrestling practices. Kaleigh graduated from high school on June

7, 2023, and is undecided about college. She is an accomplished vocalist and during

2023 earned $7,200 performing at various events (e.g., weddings, funerals). Kaleigh

placed most of her earnings in a savings account for future use and kept only a small

amount to spend on herself.

11. Matthews Form W2 from The Pour House shows $15,800 withheld for Federal

income tax. The Mumfords also made estimated tax payments to the IRS totaling

$7,000 for 2023.

12. The Mumfords choose to file a joint income tax return. The Mumfords do not own

any foreign bank accounts or other investments. In addition, the Mumfords do not

have any financial interests in virtual currencies.

13. The Mumfords prefer to receive a refund of any overpaid taxes.

14. For the past several years, the Mumfords have itemized their deductions from AGI.

Prepare 2023 Federal income tax return for the Mumfords and write a letter to them stating

explanations.