Note: This problem is for the 2021 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 2021. 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. Davids employment-related expenses for 2021 are summarized below. Airfare $8,800 Lodging 4,835 Meals from restaurants (during travel status) 2,400 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 2019 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2021. He purchased the Expedition on August 15, 2018, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2021. When the Coles purchased their present residence in April 2018, 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 2021 (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 2021 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 Ellas 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 2021. 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 2020 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 Davids divorced mother, Sarah, who has been claimed as their dependent. In late December 2020, 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 2020, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2021, they sold the ATVs to their neighbor. Additional expenditures for 2021 include: Funeral expenses for Sarah $4,500 Taxes Real property taxes on personal residence $6,400 Colorado state income tax due (paid in April 2021 for tax year 2020) 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 2021, 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. Also, the Coles want any overpayment of tax refunded to them and not applied toward next years tax liability. David will have a self-employment tax liability. Required: Using the appropriate forms and schedules, compute the Coles Federal income tax for 2021. Disregard the alternative minimum tax (AMT) and the various education credits. FILL IN BLANKS ONLY PLEASE.

Name(s) shown on Form 1040, 1040-SR, or 1040-NR David R, and Ella M. Cole Your social security number part I Additional Income 123456788 1 Taxable refunds, credits, or offsets of state and local income taxes 2a. Alimony recelived b Date of original divorce or separation agreement (see instructions) 3 Business income or (loss). Attach Schedule C 4 Other gains or (losses), Attach Form 4797 5 Rental real estate, royalties, partnerships, 5 corporations, trusts, etc. Attach schedule E 6 Farm income or (loss), Attach Schedule F 7 Unemployment compensation. 8 Other income: a Net operating loss b Gambling income c Cancellation of debt. d. Foreign earned income exclusion from form 2555 e Toxable Health Savings Account diatribution f Alaska Permanent Fund dividends 9 Jury duty pay h Prizes and awards. 1. Activity not engaged in for profit lincome J Stock, options k. Income from the rental of personal property if you engaged in the rental for profit but were not in the business of renting such property 1 Olympic and Paralympic medsis and USOC prize money (see instructions) - Section 461(1) excess business loss adjustment p Taxable distributions from an ABLE account (see instructions) . ............ z Other income, List type and amount \begin{tabular}{|l|l|} \hline 80 \\ \hline 8p & \\ \hline 8z & \\ \hline \end{tabular} 9 Total other income. Add lines Ba through 8z, 10 Combine lines 1 through 7 and 9 . Enter here and on Form 1040, 1040-SR, or 1040-NR, line 8......... 9 10 For Paperwork Reduction Act Notice, see your tax return instructions. Cat. No, 71479F Schedule 1 (Form 1040) 2021 Schedule 1 (Form 1040) (2021) David R. and Ella M. Cole 123456783 Part II Adjustments to Income 11 Educator expenses 12 Certain business expenses of reservists, performing artists, and fee-basis government officials. Attach Form 2106 13 Health savings account deduction. Attach Form 8389 14 Moving expenses for members of the Armed Forces. Attach Form 3903 15 Deductible part of self-employment tax. Attach Schedule SE. 16 Self-employed SEP, SIMPLE, and qualified plans 17 Self-employed health insurance deduction 18 Penalty on early withdrawal of savings 19a Alimony paid b Recipient's SSN c Date of original dlvorce or separation agreement (see instructions) ........ 20 IRA deduction \begin{tabular}{|l|l|} \hline 11 & \\ \hline 12 & \\ \hline 13 & \\ \hline 14 & \\ \hline 15 & \\ \hline 16 & \\ \hline 17 & \\ \hline 18 & \\ \hline 19a & \\ \hline & \\ \hline 20 & \\ \hline \end{tabular} 20 IRA deduction 21 Student loan interest deduction 22 Reserved for future use 23 Archer MSA deduction 24 Other adjustments: a Jury duty pay (see instructions) b Deductible expenses related to income reported on line ak from the rental of personal property engaged in for profit. c Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line al d Reforestation amortization and expenses e Repayment of supplemental unemployment benefits under the Trade Act of 1974 f Contributions to section 501(c)(18)(0) pension plans 9 Contributions by certain chaplains to section 403 (b) plans h Attorney fees and court costs for actions involving certain unlawful discrimination claims (see instructions) 1. Attorney fees and court costs you paid in connection with an award from the IRS for information you provided that helped the IRS detect tax low violations j Housing deduction from Form 2555 k Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041) z Other adjustments. Ust type and amount \begin{tabular}{|l|l|} \hline 20 & \\ \hline 21 & \\ \hline 22 & \\ \hline 23 & \\ \hline \end{tabular}