Note: This problem is for the 2020 tax year. David R. and Ellie M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant specializing in retail management, and Ellie is a dental hygienist for a chain of dental clinics. David earned consulting fees of $145,000 in 2020. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ellie's employer but have chosen not to participate in its 401(k) retirement plan. David's employment-related expenses for 2020 are summarized below. Airfare $8,800 Lodging 4,670 Meals from restaurants (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 taking clients to sporting and musical events. 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 clients. In addition, David drove his 2018 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2020. He purchased the Expedition on August 15, 2017, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2020. Last, assume that Dave does not defer self-employment taxes. When the Coles purchased their present residence in April 2017, 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 2020 (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. Ellie works at a variety of offices as a substitute when a 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). Assume that Ellie is an employee (not an independent contractor). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2020 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 Ellie's salary for the year is $42,000, and her Form W-2 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. Besides the items already mentioned, the Coles had the following receipts during 2020. Interest income- State of Colorado general purpose bonds $2,500 IBM bonds 800 1,200 $4,500 510 Wells Fargo Bank Federal income tax refund for year 2019 Life insurance proceeds paid by Eagle Assurance Corporation Inheritance of savings account from Sarah Cole Sales proceeds from two ATVs 200,000 50,000 9,000 For several years, the Coles' household has included David's divorced mother, Sarah, who has been claimed as their dependent. In late December 2019, Sarah unexpectedly died of heart attack in her sleep. Unknown to Ellie and David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each). In 2019, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2020, they sold the ATVs to their neighbor. $4,500 $6,400 Additional expenditures for 2020 include: Funeral expenses for Sarah Taxes- Real property taxes on personal residence Colorado state income tax due (paid in April 2020 for tax year 2019) Mortgage interest on personal residence (Rocky Mountain Bank) Contributions to traditional IRAs for Ellie and David ($6,000 + $6,000) 310 6,710 6,600 12,000 In 2020, the Coles made quarterly estimated tax payments of $6,000 (Federal) and $500 (state) for a total of $24,000 (Federal) and $2,000 (state) Using the appropriate forms and schedules, compute the Coles' Federal income tax for 2020. Disregard the alternative minimum tax (AMT) and the various education credits 1 Wages, salaries, tips, etc. Attach Form(s) W-2. 1 42,000 2a Tax-exempt interest .. 2a 2,500 b Taxable interest. 2b 3a b Ordinary dividends. 3b 3a Qualified dividends ... 4a IRA distributions ... 5a Pensions and annuities 4a b Taxable amount. 4b 5a b Taxable amount. 5b 6a Social security benefits b Taxable amount . 6b 7 Capital gain or loss). Attach Schedule D if required. If not required, check here ... 7 8 Other income from Schedule 1, line 9. 8 9 Add lines 1, 2b, 36, 4b, 5b, 6b, 7, and 8. This is your total income ... 9 10 Adjustments to income: a From Schedule 1, line 22... 10a b Charitable contributions if you take the standard deduction. See instructions ... 10b c Add lines 10a and 10b. These are your total adjustments to income 100 11 Subtract line 10c from line 9. This is your adjusted gross income. 11 12 Standard deduction or itemized deductions (from Schedule A).. 12 Dogg 13 Qualified business income deduction. Attach Form 8995 or Form 8995-A. 13 14 Add lines 12 and 13. 14 15 Taxable income. Subtract line 14 from line 11. If zero or less, enter -o- 15 16 Tax (see instructions). Check if any from Form(s): 108814 20 4972 30 16 17 Amount from Schedule 2, line 3. 17 18 Add lines 16 and 17.... 18 19 19 Child tax credit or credit for other dependents. Amount from Schedule 3, line 7. 20 20 21 Add lines 19 and 20.. 21 22 Subtract line 21 from line 18. If zero or less, enter -O- 22 23 Other taxes, including self-employment tax, from Schedule 2, line 10. 23 24 Add lines 22 and 23. This is your total tax. 24 25 Federal income tax withheld from: . Form(s) W-2... a 25a b Form(s) 1099 25b c Other forms (see instructions) 250 d Add lines 25a through 25c.. 25d 26 2020 estimated tax payments and amount applied from 2019 return. 26 33 33 34 Add lines 25d, 26, and 32. These are your total payments. If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid.... 101 34 35a Amount of line 34 you want refunded to you. If Form 8888 is attached, check here 35a Note: This problem is for the 2020 tax year. David R. and Ellie M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant specializing in retail management, and Ellie is a dental hygienist for a chain of dental clinics. David earned consulting fees of $145,000 in 2020. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ellie's employer but have chosen not to participate in its 401(k) retirement plan. David's employment-related expenses for 2020 are summarized below. Airfare $8,800 Lodging 4,670 Meals from restaurants (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 taking clients to sporting and musical events. 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 clients. In addition, David drove his 2018 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2020. He purchased the Expedition on August 15, 2017, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2020. Last, assume that Dave does not defer self-employment taxes. When the Coles purchased their present residence in April 2017, 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 2020 (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. Ellie works at a variety of offices as a substitute when a 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). Assume that Ellie is an employee (not an independent contractor). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2020 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 Ellie's salary for the year is $42,000, and her Form W-2 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. Besides the items already mentioned, the Coles had the following receipts during 2020. Interest income- State of Colorado general purpose bonds $2,500 IBM bonds 800 1,200 $4,500 510 Wells Fargo Bank Federal income tax refund for year 2019 Life insurance proceeds paid by Eagle Assurance Corporation Inheritance of savings account from Sarah Cole Sales proceeds from two ATVs 200,000 50,000 9,000 For several years, the Coles' household has included David's divorced mother, Sarah, who has been claimed as their dependent. In late December 2019, Sarah unexpectedly died of heart attack in her sleep. Unknown to Ellie and David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each). In 2019, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2020, they sold the ATVs to their neighbor. $4,500 $6,400 Additional expenditures for 2020 include: Funeral expenses for Sarah Taxes- Real property taxes on personal residence Colorado state income tax due (paid in April 2020 for tax year 2019) Mortgage interest on personal residence (Rocky Mountain Bank) Contributions to traditional IRAs for Ellie and David ($6,000 + $6,000) 310 6,710 6,600 12,000 In 2020, the Coles made quarterly estimated tax payments of $6,000 (Federal) and $500 (state) for a total of $24,000 (Federal) and $2,000 (state) Using the appropriate forms and schedules, compute the Coles' Federal income tax for 2020. Disregard the alternative minimum tax (AMT) and the various education credits 1 Wages, salaries, tips, etc. Attach Form(s) W-2. 1 42,000 2a Tax-exempt interest .. 2a 2,500 b Taxable interest. 2b 3a b Ordinary dividends. 3b 3a Qualified dividends ... 4a IRA distributions ... 5a Pensions and annuities 4a b Taxable amount. 4b 5a b Taxable amount. 5b 6a Social security benefits b Taxable amount . 6b 7 Capital gain or loss). Attach Schedule D if required. If not required, check here ... 7 8 Other income from Schedule 1, line 9. 8 9 Add lines 1, 2b, 36, 4b, 5b, 6b, 7, and 8. This is your total income ... 9 10 Adjustments to income: a From Schedule 1, line 22... 10a b Charitable contributions if you take the standard deduction. See instructions ... 10b c Add lines 10a and 10b. These are your total adjustments to income 100 11 Subtract line 10c from line 9. This is your adjusted gross income. 11 12 Standard deduction or itemized deductions (from Schedule A).. 12 Dogg 13 Qualified business income deduction. Attach Form 8995 or Form 8995-A. 13 14 Add lines 12 and 13. 14 15 Taxable income. Subtract line 14 from line 11. If zero or less, enter -o- 15 16 Tax (see instructions). Check if any from Form(s): 108814 20 4972 30 16 17 Amount from Schedule 2, line 3. 17 18 Add lines 16 and 17.... 18 19 19 Child tax credit or credit for other dependents. Amount from Schedule 3, line 7. 20 20 21 Add lines 19 and 20.. 21 22 Subtract line 21 from line 18. If zero or less, enter -O- 22 23 Other taxes, including self-employment tax, from Schedule 2, line 10. 23 24 Add lines 22 and 23. This is your total tax. 24 25 Federal income tax withheld from: . Form(s) W-2... a 25a b Form(s) 1099 25b c Other forms (see instructions) 250 d Add lines 25a through 25c.. 25d 26 2020 estimated tax payments and amount applied from 2019 return. 26 33 33 34 Add lines 25d, 26, and 32. These are your total payments. If line 33 is more than line 24, subtract line 24 from line 33. This is the amount you overpaid.... 101 34 35a Amount of line 34 you want refunded to you. If Form 8888 is attached, check here 35a