Please complete the 2021 federal income tax return for Daniel and Donna Coleman. Daniel and Donna Coleman live in Plymouth, Maine. Daniel is 53 years old and the Vice-President of Sales at a small start-up company. Donna is 55 years old and a former advertising executive who currently consults with former clients. The Colemans have two children Rachel (age 20) and Adam (age 16). Rachel does not work as she is a full-time college student at Maine University (MU) and received a $6,000 scholarship in 2021 for MU tuition. Rachel was not required to perform any services as a condition of accepting the scholarship. Adam is a high school student and works during the summer for a company that runs camp sites he earned $8,500 in 2021.

The Colemans plan to file a joint tax return and provided the following information:

Daniels social security number is AAA-BB-CCCC

Donnas social security number is BBB-CC-DDDD

Rachels social security number is CCC-DD-EEEE

Adams social security number is DDD-EE-FFFF

Mailing address is 18 Ocean Drive, Plymouth, Maine 07333

Daniel Coleman reported the following information relating to his employment during the year:

Employer: Alternative Creations

Gross Wages: $148,050

Federal Income Tax Withholding: $28,000

State Income Tax Withholding: $11,000

Daniels employer withheld all payroll taxes it was required to withhold. The entire Coleman family was covered by minimum essential health insurance during each month in 2021. The insurance was provided by Daniels employer.

Donna Coleman uses the cash method of accounting for her business activities which were as follows:

Consulting revenue reported to her on a Form 1099-NEC

High-end Retail $32,000

Jensens Health Products $8,509

Strategic Solutions $3,750

During the year, Donna paid the following business expenses:

Office expenses $570

Professional license fees $325

Airfare $2,900

Hotel $1,450

Meals $390

Parking $320

Contract labor $1,800

Donna has an office area (400 square feet) in the home and uses the simplified method to determine her home office deduction. The total square footage of the Colemans home is 2,500.

Donna drove 520 business miles for her consulting-related activities. Donna drove a 2015 Volvo purchased on January 1, 2015 for all her business mileage. She drove the vehicle a total of 10,605 miles during the year for all purposes. Donna has written documentation to support the mileage amounts. She also has access to another vehicle for personal purposes.

Donna made the following estimated tax payments in 2021: $5,000 for Federal income taxes and $2,000 for state income taxes.

The Colemans also received the following investment income during the year:

Interest income from First Bank of Maine $320

Interest income from a Municipal Bond $200

Interest income from U.S. Treasury Bond $1,350

Qualified dividends income from Microsoft $2,650

Dividend income (not qualified) from Grant Fund $2,350

The Colemans did not own, control or manage any foreign bank accounts, nor were they grantors or beneficiaries of a foreign trust during the tax year.

The Colemans had the following activity in their brokerage account during the year. All transactions were reported on a Form 1099-B and basis information on each stock sale was reported to the IRS.

Sold 1,000 shares of Google, Inc. 5/5/21 $28,500

Sold 200 shares of Apple, Inc. 7/7/21 $36,500

Sold 50 shares of Union Classic 9/9/21 $1,500

Relevant tax basis/holding period information related to sales of securities in the current year:

Purchased 2,000 shares of Google, Inc. on 6/6/16 for $42,000

Purchased 200 shares of Apple, Inc. on 8/8/18 for $34,000

Purchased 50 shares of Union Classic on 10/10/20 for $3,000

The Colemans received a Maine state income tax refund of $400 in May of 2021. The Colemans received the refund because they had overpaid their Maine state individual income tax in 2020. On their 2020 Federal income tax return, the Colemans itemized their deductions and received full tax benefit (deduction) for the state tax income taxes paid in 2020.

Donna is a 20% owner in an advertising agency named Bright Ideas, Inc. (BI) (EIN XX-YYYZZZZ). BI is a Subchapter S corporation. The company reported ordinary business income for the year of $150,000. Donna received a K-1 from BI reporting her allocation of this business income. Donna acquired the stock several years ago. Her basis and at-risk amount in the stock before considering her 2021 income allocation was $92,000. Donna is a passive owner with respect to this entity.

Donna is also a 20% owner in Natural Sunshine, Inc. (NS) (EIN AA-BBBCCCC). NS is a Subchapter S corporation. The company reported an ordinary business loss for the year of ($80,000). Donna received a K-1 from NS reporting her allocation of this business loss. Donna acquired the stock several years ago. Her basis and at-risk amount in the stock before considering her 2021 loss allocation was $12,000. Donna is a passive owner with respect to this entity.

In May, Daniel was injured in a home accident. The injury prevented Daniel from working for about a month. During this time, Daniel received $12,000 in disability payments attributable to a disability insurance policy. The disability policy premiums were paid by Daniels employer as a nontaxable fringe benefit.

The Colemans paid the following expenses during the year:

Dentist (unreimbursed by insurance): $1,500

Doctors (unreimbursed by insurance): $2,425

Prescriptions (unreimbursed by insurance): $675

Real property taxes on residence: $7,525

Vehicle property tax based upon value: $1,250

Mortgage interest on principal residence ($600,000 acquisition indebtedness): $12,550

Margin interest paid on brokerage account loan: $600

Fee paid to Mouser, Johnson, and Hintze CPAs for tax preparation: $1,200

Contribution to United Way: $2,000

Contribution to American Cancer Society: $5,000

The Colemans also donated clothing, electronics, furniture and other household goods to the Salvation Army of Plymouth, Maine on April 15, 2021. The Colemans estimated that their cost of donated items was $5,000. Estimated thrift value of the goods donated was $275.