Tax Computation Problem 2 Please complete the Worksheet on attached below using the following information. The 2022 Tax Tables are in the appendix to your book & posted on Moodle [use the draft tables] 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 2022. 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 2022 are summarized below. Airfare $8,800 Lodging 4,615 Meals (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 2020 Ford Expedition 12,000 miles for business and 4,000 for personal use during 2022. He purchased the Expedition on August 15, 2019; David always has used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2022. Assume that David drove half his mileage between January 1 and June 30th and the remainder between July 1 and December 31st. When the Coles purchased their present residence in April 2019, they devoted 450 of the 3,000 square feet (15%) 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 2022 (except for mortgage interest and property taxes; see below) are reported as follows. Insurance $2,600 Repairs and maintenance 900 Utilities 4,700 Painting office area; area rugs and plants (in the office) 1,800 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). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2022 are summarized 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. In addition to those items already mentioned, the Coles had the following receipts during 2022. Interest income. State of Colorado general purpose bonds, 2,500 dollars. I B M bonds, 800. Wells Fargo Bank, 1,200, 4,500 dollars. Federal income tax refund for year 2021, 510. Life insurance proceeds paid by Eagle Assurance Corporation, 200,000. Inheritance of savings account from Sarah Cole, 50,000. Sale proceeds from two A T Vs, 9,000. For several years, the Coles household has included Davids divorced mother, Sarah, who has been claimed as their dependent. In late December 2021, Sarah unexpectedly died. 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 2022, they sold the ATVs to their neighbor. Additional expenditures for 2022 include the following. Funeral expenses for Sarah, 4,500 dollars. Taxes. Real property taxes on personal residence, 6,400 dollars. Colorado state income tax due (paid April 2022 for tax year 2021), 310, Total Taxes paid 6,710. Mortgage interest on personal residence (Rocky Mountain Bank), 6,600. Paid church pledge, 2,400. Contributions to traditional I R As for Ella and David (6,000 dollars plus 6,000 dollars), 12,000 dollars. In 2022, 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 attached Excel worksheet, compute David and Ellas joint Federal income tax for 2022. Disregard the alternative minimum tax (AMT) and various education credits. Also, they want any overpayment of tax refunded to them and not applied toward next years tax liability. Note that David will have a self-employment tax liability.

Chapter 11 Tax Computation Problem Consulting Practice (David) \begin{tabular}{l} Subtotal \multicolumn{1}{c}{ Total } \\ \begin{tabular}{|r|r|} \hline & \\ \hline 0 & 0 \\ \hline \end{tabular} \end{tabular} Earnings (Ella) Interest Income Consulting Fees less: Business Expenses (calculate below) Notes State of Colorado Bonds IBM Bonds Wells Fargo Bank Federal income tax refund Life insurance proceeds Inherited savings account One Half of self-employment taxes Sale of all-terrain vehicles IRA contributions David Adjusted Gross Income (AGI) \begin{tabular}{|l|l|} \hline & \\ \hline & 0 \\ \hline & 0 \\ \cline { 2 } & \end{tabular} Itemized Deductions: \begin{tabular}{l|l|} \hline Medical & \\ \hline Taxes & \\ \hline Property & \\ \hline Income & \\ \hline Interest & \\ \hline Charitable Contributions & \\ \hline Miscellaneous & \\ \hline Total Itemized Deductions & 0 \\ \hline \end{tabular} Select Greater of Itemized or Married Filing Joint Standard Deduction Deduction for Qualified Business Income (Calculate Below) Taxable Income Tax on Taxable Income using 2022 Tax Tables Married, Filing Jointly Self Employment Tax (calculate below) Total Tax Liability less Federal tax witheld and estimated tax payments Net tax due (or refund) Self Employed job expenses Airfare Lodging Meals Entertainment Transportation Business Gifts Office Supplies Business Mileage (use $.56/mi ) Business Parking and Tolls Home Office Deduction Percent of Business use is 15%(450/3,000) Insurance Repairs and Maintenance Utilities Interest Taxes Painting, area rugs, plants (in home office) Depreciation (use 2.564%, and round to nearest \$) \begin{tabular}{|l|} \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \end{tabular} Self Employment Tax Calculation Schedule C Net Income reduce by 1-.0765 (FICA and Medicare Tax) Self Employment Tax Base \begin{tabular}{|l|} \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \end{tabular} x Self employment tax rate Self Employment Tax Deduction for Qualified Business Income Method 1 Net Income from proprietorship less half of Self Employment Tax Qualified Business Income deduction (20\%) 0 Method 2 Adjusted Gross Income less standard or itemized deductions Qualified Business Income deduction (20\%) 0 Deduction for Qualified Business Income is the lesser amount 0 Chapter 11 Tax Computation Problem Consulting Practice (David) \begin{tabular}{l} Subtotal \multicolumn{1}{c}{ Total } \\ \begin{tabular}{|r|r|} \hline & \\ \hline 0 & 0 \\ \hline \end{tabular} \end{tabular} Earnings (Ella) Interest Income Consulting Fees less: Business Expenses (calculate below) Notes State of Colorado Bonds IBM Bonds Wells Fargo Bank Federal income tax refund Life insurance proceeds Inherited savings account One Half of self-employment taxes Sale of all-terrain vehicles IRA contributions David Adjusted Gross Income (AGI) \begin{tabular}{|l|l|} \hline & \\ \hline & 0 \\ \hline & 0 \\ \cline { 2 } & \end{tabular} Itemized Deductions: \begin{tabular}{l|l|} \hline Medical & \\ \hline Taxes & \\ \hline Property & \\ \hline Income & \\ \hline Interest & \\ \hline Charitable Contributions & \\ \hline Miscellaneous & \\ \hline Total Itemized Deductions & 0 \\ \hline \end{tabular} Select Greater of Itemized or Married Filing Joint Standard Deduction Deduction for Qualified Business Income (Calculate Below) Taxable Income Tax on Taxable Income using 2022 Tax Tables Married, Filing Jointly Self Employment Tax (calculate below) Total Tax Liability less Federal tax witheld and estimated tax payments Net tax due (or refund) Self Employed job expenses Airfare Lodging Meals Entertainment Transportation Business Gifts Office Supplies Business Mileage (use $.56/mi ) Business Parking and Tolls Home Office Deduction Percent of Business use is 15%(450/3,000) Insurance Repairs and Maintenance Utilities Interest Taxes Painting, area rugs, plants (in home office) Depreciation (use 2.564%, and round to nearest \$) \begin{tabular}{|l|} \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \end{tabular} Self Employment Tax Calculation Schedule C Net Income reduce by 1-.0765 (FICA and Medicare Tax) Self Employment Tax Base \begin{tabular}{|l|} \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \\ \hline \end{tabular} x Self employment tax rate Self Employment Tax Deduction for Qualified Business Income Method 1 Net Income from proprietorship less half of Self Employment Tax Qualified Business Income deduction (20\%) 0 Method 2 Adjusted Gross Income less standard or itemized deductions Qualified Business Income deduction (20\%) 0 Deduction for Qualified Business Income is the lesser amount 0