REQUIREMENTS
Prepare an income tax return for 2020.

Facts:
Charlie S. and Meegan C. Burne are married and live at 5006 Ferrari Street, Naples, FL 34102. They file a joint return and are calendar year, cash basis taxpayers.
Charlie worked as a manager for KPMG in their tax division and resigned in May 2020 to start his own business. Charlie then became a self-employed CPA (professional activity code is 541211) and began his business in June 2020. He maintains an office at 1900 Tamiami Trail North, Naples, FL 34102

1. All of the following expenses paid in 2020 below occurred after Charlie became self-employed:
Office rent (prepaid 12 months on 6/1/2020) $13,000
Utilities 1,600
Office expenses (supplies, etc.) 2,800
Contributions to Collier County political campaign 300
Tolls (business related) 150
Parking expense (business related) 220
State and local license fees 1,800
Renter’s insurance (prepaid 24 months on 6/1/2020) 4,700
New office furniture and office equipment on 6/1/2020 7,400
New computer equipment acquired on 10/8/2020 6,800
Organization and start-up costs 54,000
Advertising 3,100
Meals 2,200
Entertainment 1,100

In 2020 Charlie hired no employees as he was just starting his business. The meals and entertainment expenses are properly supported and documented and relate to taking clients out to eat and discussing business during the meals. Sometimes these meals also included an entertainment venue such as paying for clients expenses related to golfing, fishing, etc. in order to build better client relationships.

Of 22,000 total miles driven in 2020, Charlie drove his car (a 2017 Tesla Model S) purchased on 12/26/2016) 12,500 miles for business (not including commuting). Charlie uses the automatic mileage method of claiming automobile expenses.

2. Meegan, age 44, works as a speech therapist for the Collier County School system. In addition to a salary, Meegan receives several qualified fringe benefits including group health insurance where the employer paid portion of monthly premiums was $12,000. Meegan separately paid monthly health insurance premiums for the employee portion. Meegan’s company also offers free group term life insurance for all their employees. Meegan received $500,000 in life insurance coverage in 2020.

3. Charlie bought 500 shares of Apple stock on January 14, 2016 for $200 per share with a related brokerage fee of $1,200. Charlie sold 200 shares for $170 per share on November 19, 2020 and paid a $500 related brokerage fee. Charlie then purchased 100 shares of the same type of Apple stock on December 15, 2020 for $180 share with no brokerage fee.

Meegan had the following stock sales in 2020:
Date Purchased Basis Date Sold Amount Realized
Stock 1 3/16/1997 $7,850 7/22/2020 $6,500
Stock 2 2/12/2020 15,000 9/13/2020 15,200
Stock 3 6/25/2012 11,750 10/12/2020 15,800
Stock 4 7/19/2020 8,250 11/12/2020 8,660
Stock 5 9/18/2006 1,400 11/26/2020 6,500

4. Besides those previously noted, the Burnes had the following receipts for 2020:
Charlie's W-2 wages KPMG (January - May 2020) $58,333
Accounting fees received for services (June - December) $60,000
Meegan’s W-2 wages (see information below) $55,000
Qualified dividends from Microsoft Corp $ 950
Income tax refunds for tax year 2020
Federal tax $5,700
Collier County Property tax 1,600 $7,300
Interest income-- SunTrust Bank $120
Annuity income (see information below) $900
Gambling income from trip to Seminole Casino $2,400

Meegan’s W-2 wage amount (above) includes $5,000 employer contribution to
401K defined contribution plan but does not include any amounts from Item 2.

Meegan purchased an annuity in 2017 and invested $8,000 and receives $900 yearly over a 15 year period. Meegan received a $900 annuity payment in December 2020.

6. In addition to any items previously noted, the Burnes had the following itemized expenses for 2020:
Medical and dental expenses not covered by Insurance $6,000
Real estate tax on personal residence 5,500
Interest—
Home mortgage $21,000
Investment interest 3,300 $24,300
Charitable contributions $6,000
Gambling expenses (with proof of payment) 3,200

Of the $6,000 in medical expenses, $5,000 was used to cover co-payments and uninsured medical and dental procedures for Charlie and Meegan and their children. $200 was for purchases of over the counter medications. The remaining $800 was used to pay for an urgent care clinic visit for Nick Burne, Charlie’s brother who is not a dependent. Nick was out fishing with Charlie and Charlie accidently hooked him in the neck with a lure while casting his rod. Nick was able to fully recover but has not been fishing with Charlie since the accident.

On December 24, 2018 the Burnes purchased their current residence for $550,000 and put down a $110,000 deposit and financed $440,000 with SunTrust Bank.

The charitable contributions were all cash contributions to qualified charitable organizations.

7. The Burnes’ household includes their three children: Mark, age 21, Gigi age 16, and Lynda, age 14. Gigi and Lynda are full-time students and live at home. Mark lived at home all year and is attending Ave Maria University full time and he also works at Publix and earned $9,500 in 2020. The Burnes provide more than half of each of the children’s living expenses.

8.Meegan’s Form W-2 shows $14,000 withheld for Federal income tax. Charlie has W-2 withholding of $13,000 from KPMG and he made two quarterly estimated tax payments related to his new business of $6,000 in 2020. All Social Security numbers are noted below.

Name Social Security Number
Charlie A. Burne 123-45-6789
Meegan M. Burne 123-45-6439
Mark Burne 123-45-6781
Gigi Burne 123-45-6782
Lynda Burne 123-45-6783