Note: This problem is for the 2017 tax year.

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 regional sales manager for Wren Industries, a national wholesaler of plumbing and heating supplies, and Ella is a part-time dental hygienist for a chain of dental clinics.

David is classified by Wren as a statutory employee with compensation for 2017 (based on commissions) of $95,000. He is expected to maintain his own office and pay for all business expenses from this amount. Wren does not require him to render any accounting as to the use of these funds. It does not withhold Federal and state income taxes but does withhold and account for the payroll taxes incurred (e.g., Social Security and Medicare). The Coles are adequately covered by Wren's noncontributory medical plan but have chosen not to participate in its 401(k) retirement plan.

David's employment-related expenses for 2017 are summarized below.

Airfare	$8,800
Lodging	5,000
Meals (during travel status)	4,800
Entertainment	3,600
Ground transportation (e.g., limos, rental cars, and taxis)	800
Business gifts	900
Office supplies (includes postage, overnight delivery, and copying)	1,500

The entertainment involved business meals for purchasing agents, store owners, and building contractors. 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 customers. In addition, David drove his 2015 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2017. He purchased the Expedition on August 15, 2014, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2017.

When the Coles purchased their present residence in April 2014, 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 2017 (except for mortgage interest and property taxes; see below) are as follows:

Insurance	$2,600
Repairs and maintenance	900
Utilities	4,700
Painting office area; area rugs and plants (in the office)*	1,800
*Treat as a direct office in home expense.

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 part-time as a substitute for whichever 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). Assumed that Ella is an employee (not an independent contractor). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2017 appear below.

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 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. Because Ella is a part-time employee, she is not included in her employer's medical or retirement plans.

Besides the items already mentioned, the Coles had the following receipts during 2017.

Interest income
State of Colorado general purpose bonds	$2,500
IBM bonds	800
Wells Fargo Bank	1,200	$4,500
Federal income tax refund for year 2016		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 David's divorced mother, Sarah, who has been claimed as their dependent. In late November 2017, Sarah unexpectedly died of coronary arrest 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 2016, the Coles purchased two ATVs for $14,050. After several near mishaps, they decided that the sport was too dangerous. In 2017, they sold the ATVs to their neighbor.

Additional expenditures for 2017 include:

Funeral expenses for Sarah		$4,500
Taxes
Real property taxes on personal residence	$6,400
Colorado state income tax due (paid in April 2017 for tax year 2016)	310	6,710
Mortgage interest on personal residence (Rocky Mountain Bank)		6,600
Paid church pledge		2,400
Contributions to traditional IRAs for Ella and David ($5,500 + $5,500)		11,000

In 2017, the Coles made quarterly estimated tax payments of $1,400 (Federal) and $500 (state) for a total of $5,600 (Federal) and $2,000 (state).

Relevant Social Security numbers are:

David Cole	123-45-6788
Ella Cole	123-45-6787
Sarah Cole	123-45-6799

Required:

Using the appropriate forms and schedules, compute the Coles' Federal income tax for 2017. Disregard the alternative minimum tax (AMT) and the various education credits

• Make realistic assumptions about any missing data.
• Enter all amounts as positive numbers.
• If an amount box does not require an entry or the answer is zero, enter "0".
• If required, round all dollar amounts to the nearest dollar.
• It may be necessary to complete the tax schedules before completing Form 1040.
• When computing the tax liability, do not round your immediate calculations. If required, round your final answers to the nearest dollar.
• 
• Need Business Income or loss (Form 1040)?? Thank you

2017 Tax Rate Schedules Head of household-Schedule Z | If taxable income Single-Schedule X of the If taxable income of the is: But not is: But not amount amount The tax is: . 10% Over Over The tax is: over- over over over- $0 $9,325 0 $13,350 $0 .. 10% 9,325 37,950 $932.5015% 9,325 13,350 50,800 $1,335.00 15% 13,350 6,952.50 25% 37,950 91,900 5,226.25 25% 37,950 50,800 131,200 50,800 91,900 191,650 18,713.75 28% 91,900 131,200 212,500 27,052.5028% 131,200 191,650 416,700 46,643.7533% 191,650 212,500 416,700 49,816.50 33% 212,500 416,700 418,400 120,910.25 + 35% 416,700 416,700 444,550 117,202.50 + 35% 416,700 ... . 121,505.25 +39.6% Married filing jointly or Qualifying widow(er)-Schedule Y-1 418,400 444,550 418,400 126,950.00 39.6% 444,550 Married filing separately-Schedule Y-2 If taxable income is: of the If taxable income of the is: But not amount But not amount Over The tax is: Over The tax is: over over over- over $0 $9,325 $0 $18,650 ... . . . 10% $0 .... . . 10% $0 18,650 75,900 $1,865.00 + 15% 18,650 9,325 37,950 $932.5015% 9,325 37,950 75,900 153,100 10,452.50 + 25% 75,900 37,950 76,550 5,226.25 25% 153,100 233,350 29,752.50 + 28% 153,100 76,550 116,675 14,876.25 +28% 76,550 233,350 416,700 52,222.50 33% 233,350 116,675 208,350 26,111.25 33% 116,675 208,350 235,350 56,364.00 35% 416,700 470,700 112,728.00 + 35% 416,700 208,350 131,628.00 39.6% 470,700 470,700 235,350 65,814.00 39.6% 235,350 2017 Tax Rate Schedules Head of household-Schedule Z | If taxable income Single-Schedule X of the If taxable income of the is: But not is: But not amount amount The tax is: . 10% Over Over The tax is: over- over over over- $0 $9,325 0 $13,350 $0 .. 10% 9,325 37,950 $932.5015% 9,325 13,350 50,800 $1,335.00 15% 13,350 6,952.50 25% 37,950 91,900 5,226.25 25% 37,950 50,800 131,200 50,800 91,900 191,650 18,713.75 28% 91,900 131,200 212,500 27,052.5028% 131,200 191,650 416,700 46,643.7533% 191,650 212,500 416,700 49,816.50 33% 212,500 416,700 418,400 120,910.25 + 35% 416,700 416,700 444,550 117,202.50 + 35% 416,700 ... . 121,505.25 +39.6% Married filing jointly or Qualifying widow(er)-Schedule Y-1 418,400 444,550 418,400 126,950.00 39.6% 444,550 Married filing separately-Schedule Y-2 If taxable income is: of the If taxable income of the is: But not amount But not amount Over The tax is: Over The tax is: over over over- over $0 $9,325 $0 $18,650 ... . . . 10% $0 .... . . 10% $0 18,650 75,900 $1,865.00 + 15% 18,650 9,325 37,950 $932.5015% 9,325 37,950 75,900 153,100 10,452.50 + 25% 75,900 37,950 76,550 5,226.25 25% 153,100 233,350 29,752.50 + 28% 153,100 76,550 116,675 14,876.25 +28% 76,550 233,350 416,700 52,222.50 33% 233,350 116,675 208,350 26,111.25 33% 116,675 208,350 235,350 56,364.00 35% 416,700 470,700 112,728.00 + 35% 416,700 208,350 131,628.00 39.6% 470,700 470,700 235,350 65,814.00 39.6% 235,350