Note: This problem is for the 2020 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 self-employed consultant specializing in retail management, and Ella 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 Ellas 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.

• 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.

• Ella 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 Ella 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

• 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.
• 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
  Wells Fargo Bank	1,200	$4,500
  Federal income tax refund for year 2019		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 December 2019, Sarah unexpectedly died of heart attack 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 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.
• Additional expenditures for 2020 include:

  Funeral expenses for Sarah		$4,500
  Taxes
  Real property taxes on personal residence	$6,400
  Colorado state income tax due (paid in April 2020 for tax year 2019)	310	6,710
  Mortgage interest on personal residence (Rocky Mountain Bank)		6,600
  Contributions to traditional IRAs for Ella and David ($6,000 + $6,000)		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).
• Relevant Social Security numbers are:

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

• The Coles have never owned or used any virtual currency. The Coles received the appropriate coronavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored. They do not want to contribute to the Presidential Election Campaign Fund. David is not eligible for any qualified sick or family leave credit for 2020 and does not want to defer payment of any of his self-employment taxes for 2020. Also, the Coles want any overpayment of tax refunded to them and not applied toward next years tax liability.

Required:

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

• 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.
• Use the included tax rates schedules to compute the tax. When computing the tax liability, do not round your immediate calculations. If required, round your final answers to the nearest dollar

I am needing Schedule 1, Schedule 2, Schedule C, Schedule SE, Form 8995, and Form 8829

Form 1040 7 Capital gain or loss). Attach Schedule D if required. If not required, check here... D 7 8 Other income from Schedule 1, line 9 8 125,240 x 169,240 x 9 9 20,848 x Deduction for- Single or Married filing separately, $12,400 Married filing jointly or Qualifying widow(er), $24,800 Head of household, $18,650 If you checked any box under Standard Deduction, see instructions. Add lines 1, 2, 3, 4, 5b, 6b, 7, and 8. This is your total income. 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 11 Subtract line 10c from line 9. This is your adjusted gross inc 10c 20,848 x ne 11 148,392 x 12 24,800 12 Standard deduction or itemized deductions (from Schedule A) 13 Qualified business income deduction. Attach Form 8995 or Form 8995-A. 13 24,718 x 14 Add lines 12 and 13 14 49,518 x Taxable income. Subtract line 14 from line 11. If zero or less, enter-O- 15 98,874 x 15 BAA For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Form 1040 (2020) Schedule 1 1 2a Department of the Treasury Attach to Form 1040, 1040-SR, or 1040-NR. Attachment Internal Revenue Service Go to www.irs.gov/Form1040 for instructions and the latest information. Sequence No. 01 Name(s) shown on Form 1040, 1040-SR, or 1040-NR Your social security number David R. and Ella M. Cole 123-45-6788 Part I Additional Income 1 Taxable refunds, credits, or offsets of state and local income taxes . 2a Alimony received b Date of original divorce or separation agreement (see instructions) Business income or loss). Attach Schedule C. 125,240 x Other gains or losses). Attach Form 4797 5 Rental real estate, royalties, partnerships, Scorporations, trusts, etc. Attach Schedule E Farm income or loss). Attach Schedule F. Unemployment compensation .. 7 Other income. List type and amount 3 3 4 4 5 5 6 6 7 00 8 9 125,240 x Combine lines 1 through 8. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 Adjustments to Income Part II 10 Schedule 1 13 14 Deductible part of self-employment tax. Attach Schedule SE 14 8,848 X 15 Self-employed SEP, SIMPLE, and qualified plans. 15 16 Self-employed health insurance deduction 16 17 Penalty on early withdrawal of savings.. 17 18a 18a Alimony paid. b Recipient's SSN c Date of original divorce or separation agreement (see instructions) 19 IRA deduction 19 12,000 20 Student loan interest deduction 20 21 21 Tuition and fees deduction. Attach Form 8917 . 22 Add lines 10 through 21. These are your adjustments to income. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 10a ... 20,848 x BAA For Paperwork Reduction Act Notice, see vour tax return instructions. Schedule 1 (Form 1040) 2020 22 Schedule 2 3 0 4 5 5 6 6 3 Add lines 1 and 2. Enter here and include on Form 1040, 1040-SR, or 1040-NR, line 17 Part II Other Taxes 4 Self-employment tax. Attach Schedule SE 17,696X Unreported social security and Medicare tax from Form: a : 4137 b 8919. Additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts. Attach Form 5329 if required ... 7a Household employment taxes. Attach Schedule H. Repayment of first-time homebuyer credit from Form 5405. Attach Form 5405 if required Taxes from: a Form 8959 b Form 8960 Instructions; enter code(s) 9 Section 965 net tax liability installment from Form 965-A. 10 Add lines 4 through 8. These are your total other taxes. Enter here and on Form 1040 or 1040-SR, line 23, or Form 1040-NR, line 23b .... 17,696 X BAA For Paperwork Reduction Act Notice, see your tax return instructions. Schedule 2 (Form 1040) 2020 7a b 7b 8 8 9 10 Feedback 8 9 Schedule C Part 1 Expenses. Enter expenses for business use or your home only on line 30. 8 Advertising 8 18 Office expense (see instructions) 18 9 Car and truck expenses (see 19 Pension and profit-sharing plans. 19 instructions) 9 800 x 20 Rent or lease (see instructions): 10 Commissions and fees .. 10 a Vehicles, machinery, and equipment.... 20a 11 Contract labor (see instructions). 11 b Other business property. 20b 12 Depletion .. 12 21 Repairs and maintenance 21 13 Depreciation and section 179 22 Supplies (not included in Part III) 22 expense deduction (not included 23 Taxes and licenses in Part III) (see instructions).... 13 24 Travel and meals: 14 Employee benefit programs a Travel ...... 24a (other than on line 19) b Deductible meals (see 15 Insurance (other than health).... instructions) 24b 16 Interest (see instr.): 25 Utilities 25 a Mortgage (paid to banks, etc.)... 16a 26 Wages (less employment credits) 26 1,500 23 14,270 14 15 2,400 b Other 16b 27a Other expenses (from line 48) 27a 790 17 Legal and professional services 17 b Reserved for future use... 27b 1b 2 125,240 X 3 125,240 x 4a 115,659 x Schedule SE Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than farming). See instructions for other income to report or if you are a minister or member of a religious order 3 Combine lines 1a, 1b, and 2. 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 Note: If line 4a is less than $400 due to conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here. Combine lines 4a and 4b. If less than $400, stop; you don't owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -- and continue .. 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -- 4b 4c 115,659 X 5a 5b 6 115,659 x 6 Add lines 4c and Sb. 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2020... 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $137.700 or more skip lines 8b 7 137,700 Schedule SE Part III Maximum Deferral of Self-Employment Tax Payments If line 4c is zero, skip lines 18 through 20, and enter -- on line 21. 18 Enter the portion of line 3 that can be attributed to March 27, 2020, through December 31, 2020 18 19 20 21 19 If line 18 is more than zero, multiply line 18 by 92.35% (0.9235); otherwise, enter the amount from line 18 .. 20 Enter the portion of lines 15 and 17 that can be attributed to March 27, 2020, through December 31, 2020 ... 21 Combine lines 19 and 20.. If line 5b is zero, skip line 22 and enter -- on line 23. 22 Enter the portion of line 5a that can be attributed to March 27, 2020, through December 31, 2020 Multiply line 22 by 92.35% (0.9235)... 22 23 23 24 Add lines 21 and 23 24 25 Enter the smaller of line 9 or line 24. 25 26 26 Multiply line 25 by 6.2% (0.062). Enter here and see the instructions for line 12e of Schedule 3 (Form 1040). Schedule SE (Form 1040) 2020 BAA Feedback Form 8829 28 28 Limit on excess casualty losses and depreciation. Subtract line 27 from line 15 29 Excess casualty losses (see instructions).. 29 30 Depreciation of your home from line 42 below 31 Carryover of prior year excess casualty losses and depreciation (see instructions) 31 32 Add lines 29 through 31 30 32 33 Allowable excess casualty losses and depreciation. Enter the smaller of line 28 or line 32 33 34 Add lines 14, 27, and 33. 34 35 Casualty loss portion, if any, from lines 14 and 33. Carry amount to Form 4684 See instructions .. 35 36 Allowable expenses for business use of your home. Subtract line 35 from line 34. Enter here and on Schedule C, line 30. If your home was used for more than one business, see instructions. 36 Form 1040 7 Capital gain or loss). Attach Schedule D if required. If not required, check here... D 7 8 Other income from Schedule 1, line 9 8 125,240 x 169,240 x 9 9 20,848 x Deduction for- Single or Married filing separately, $12,400 Married filing jointly or Qualifying widow(er), $24,800 Head of household, $18,650 If you checked any box under Standard Deduction, see instructions. Add lines 1, 2, 3, 4, 5b, 6b, 7, and 8. This is your total income. 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 11 Subtract line 10c from line 9. This is your adjusted gross inc 10c 20,848 x ne 11 148,392 x 12 24,800 12 Standard deduction or itemized deductions (from Schedule A) 13 Qualified business income deduction. Attach Form 8995 or Form 8995-A. 13 24,718 x 14 Add lines 12 and 13 14 49,518 x Taxable income. Subtract line 14 from line 11. If zero or less, enter-O- 15 98,874 x 15 BAA For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see separate instructions. Form 1040 (2020) Schedule 1 1 2a Department of the Treasury Attach to Form 1040, 1040-SR, or 1040-NR. Attachment Internal Revenue Service Go to www.irs.gov/Form1040 for instructions and the latest information. Sequence No. 01 Name(s) shown on Form 1040, 1040-SR, or 1040-NR Your social security number David R. and Ella M. Cole 123-45-6788 Part I Additional Income 1 Taxable refunds, credits, or offsets of state and local income taxes . 2a Alimony received b Date of original divorce or separation agreement (see instructions) Business income or loss). Attach Schedule C. 125,240 x Other gains or losses). Attach Form 4797 5 Rental real estate, royalties, partnerships, Scorporations, trusts, etc. Attach Schedule E Farm income or loss). Attach Schedule F. Unemployment compensation .. 7 Other income. List type and amount 3 3 4 4 5 5 6 6 7 00 8 9 125,240 x Combine lines 1 through 8. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8 Adjustments to Income Part II 10 Schedule 1 13 14 Deductible part of self-employment tax. Attach Schedule SE 14 8,848 X 15 Self-employed SEP, SIMPLE, and qualified plans. 15 16 Self-employed health insurance deduction 16 17 Penalty on early withdrawal of savings.. 17 18a 18a Alimony paid. b Recipient's SSN c Date of original divorce or separation agreement (see instructions) 19 IRA deduction 19 12,000 20 Student loan interest deduction 20 21 21 Tuition and fees deduction. Attach Form 8917 . 22 Add lines 10 through 21. These are your adjustments to income. Enter here and on Form 1040, 1040-SR, or 1040-NR, line 10a ... 20,848 x BAA For Paperwork Reduction Act Notice, see vour tax return instructions. Schedule 1 (Form 1040) 2020 22 Schedule 2 3 0 4 5 5 6 6 3 Add lines 1 and 2. Enter here and include on Form 1040, 1040-SR, or 1040-NR, line 17 Part II Other Taxes 4 Self-employment tax. Attach Schedule SE 17,696X Unreported social security and Medicare tax from Form: a : 4137 b 8919. Additional tax on IRAs, other qualified retirement plans, and other tax-favored accounts. Attach Form 5329 if required ... 7a Household employment taxes. Attach Schedule H. Repayment of first-time homebuyer credit from Form 5405. Attach Form 5405 if required Taxes from: a Form 8959 b Form 8960 Instructions; enter code(s) 9 Section 965 net tax liability installment from Form 965-A. 10 Add lines 4 through 8. These are your total other taxes. Enter here and on Form 1040 or 1040-SR, line 23, or Form 1040-NR, line 23b .... 17,696 X BAA For Paperwork Reduction Act Notice, see your tax return instructions. Schedule 2 (Form 1040) 2020 7a b 7b 8 8 9 10 Feedback 8 9 Schedule C Part 1 Expenses. Enter expenses for business use or your home only on line 30. 8 Advertising 8 18 Office expense (see instructions) 18 9 Car and truck expenses (see 19 Pension and profit-sharing plans. 19 instructions) 9 800 x 20 Rent or lease (see instructions): 10 Commissions and fees .. 10 a Vehicles, machinery, and equipment.... 20a 11 Contract labor (see instructions). 11 b Other business property. 20b 12 Depletion .. 12 21 Repairs and maintenance 21 13 Depreciation and section 179 22 Supplies (not included in Part III) 22 expense deduction (not included 23 Taxes and licenses in Part III) (see instructions).... 13 24 Travel and meals: 14 Employee benefit programs a Travel ...... 24a (other than on line 19) b Deductible meals (see 15 Insurance (other than health).... instructions) 24b 16 Interest (see instr.): 25 Utilities 25 a Mortgage (paid to banks, etc.)... 16a 26 Wages (less employment credits) 26 1,500 23 14,270 14 15 2,400 b Other 16b 27a Other expenses (from line 48) 27a 790 17 Legal and professional services 17 b Reserved for future use... 27b 1b 2 125,240 X 3 125,240 x 4a 115,659 x Schedule SE Program payments included on Schedule F, line 4b, or listed on Schedule K-1 (Form 1065), box 20, code AH Skip line 2 if you use the nonfarm optional method in Part II. See instructions. 2 Net profit or loss) from Schedule C, line 31; and Schedule K-1 (Form 1065), box 14, code A (other than farming). See instructions for other income to report or if you are a minister or member of a religious order 3 Combine lines 1a, 1b, and 2. 4a If line 3 is more than zero, multiply line 3 by 92.35% (0.9235). Otherwise, enter amount from line 3 Note: If line 4a is less than $400 due to conservation Reserve Program payments on line 1b, see instructions. b If you elect one or both of the optional methods, enter the total of lines 15 and 17 here. Combine lines 4a and 4b. If less than $400, stop; you don't owe self-employment tax. Exception: If less than $400 and you had church employee income, enter -- and continue .. 5a Enter your church employee income from Form W-2. See instructions for definition of church employee income b Multiply line 5a by 92.35% (0.9235). If less than $100, enter -- 4b 4c 115,659 X 5a 5b 6 115,659 x 6 Add lines 4c and Sb. 7 Maximum amount of combined wages and self-employment earnings subject to social security tax or the 6.2% portion of the 7.65% railroad retirement (tier 1) tax for 2020... 8a Total social security wages and tips (total of boxes 3 and 7 on Form(s) W-2) and railroad retirement (tier 1) compensation. If $137.700 or more skip lines 8b 7 137,700 Schedule SE Part III Maximum Deferral of Self-Employment Tax Payments If line 4c is zero, skip lines 18 through 20, and enter -- on line 21. 18 Enter the portion of line 3 that can be attributed to March 27, 2020, through December 31, 2020 18 19 20 21 19 If line 18 is more than zero, multiply line 18 by 92.35% (0.9235); otherwise, enter the amount from line 18 .. 20 Enter the portion of lines 15 and 17 that can be attributed to March 27, 2020, through December 31, 2020 ... 21 Combine lines 19 and 20.. If line 5b is zero, skip line 22 and enter -- on line 23. 22 Enter the portion of line 5a that can be attributed to March 27, 2020, through December 31, 2020 Multiply line 22 by 92.35% (0.9235)... 22 23 23 24 Add lines 21 and 23 24 25 Enter the smaller of line 9 or line 24. 25 26 26 Multiply line 25 by 6.2% (0.062). Enter here and see the instructions for line 12e of Schedule 3 (Form 1040). Schedule SE (Form 1040) 2020 BAA Feedback Form 8829 28 28 Limit on excess casualty losses and depreciation. Subtract line 27 from line 15 29 Excess casualty losses (see instructions).. 29 30 Depreciation of your home from line 42 below 31 Carryover of prior year excess casualty losses and depreciation (see instructions) 31 32 Add lines 29 through 31 30 32 33 Allowable excess casualty losses and depreciation. Enter the smaller of line 28 or line 32 33 34 Add lines 14, 27, and 33. 34 35 Casualty loss portion, if any, from lines 14 and 33. Carry amount to Form 4684 See instructions .. 35 36 Allowable expenses for business use of your home. Subtract line 35 from line 34. Enter here and on Schedule C, line 30. If your home was used for more than one business, see instructions. 36