Joseph and Diana Jones live in Pleasantville, New Jersey.  Joseph is the Vice-President of Sales at a small start-up company.  Diana is a former advertising executive who currently consults with former clients.  She also serves on the board of directors of an advertising company.  The Joneses have three children Rebecca (age 18), Alan (age 15) and David (age 12).  In January, Rebecca left home to attend a liberal arts college.  All three children qualify as Joseph and Diana’s dependents.  The Joneses plan to file a joint return.  The Joneses provided the following information:

• Joseph’s social security number is 598-94-2583

• Diana’s social security number is 301-52-2942

• Rebecca’s social security number is 887-44-8710

• Alan’s social security number is 810-42-9092

• David’s social security number is 855-11-3021

Joseph Jones reported the following information relating to his employment during the year:

Employer	Gross Wages	Federal Income Tax Withheld	State Income Tax Withheld
Alternative Energy	$152,325	$26,230	$8,900

 

The above amounts do not reflect any income items described below.  Joseph’s employer withheld all payroll taxes it was required to withhold.  The entire Jones family was covered by minimum essential health insurance during each month in 2020.  The insurance was provided by Joseph’s employer, Alternative Energy.

Diana Cohen received the following revenue during the year (she uses the cash method of accounting).

Consulting Revenue reported to her on a from 1099-NEC, Box 1

High End Retail$32,000

Jensen’s Health Products $8,500

Strategic Solutions$4,750

Board of Director Compensation reported to her on Form 1099-NEC Box 1

Natural Sunshine, Inc.$7,200

In each of these self-employment endeavors, Diana is an active participant, and both activities are considered specified service trade or businesses for purposes of the Qualified Business Income Deduction.  Assume both Activities qualify as a trade or business.

During the year, Diana paid the following business expenses for each activity

Consultant–related

Airfare$2,900

Hotel$1,550

Meals$420

Parking$320

Diana drove 290 business miles for consulting-related activities (she has documentation to verify).

Board of Director Activity

Meals$140

Hotel$225

Diana drove 315 business miles for her board of director activities (she has documentation to verify).

Neither of Diana’s business activities required the filing of Form(s) 1099 to report payments she made during the tax year.  In addition, Ms. Jones drove a 2017 Lexus purchased on January 1, 2017 for all her business mileage.  She drove the vehicle a total of 10,605 miles during the year for all purposes.  Diana has written documentation to support the mileage amounts.  She also has access to another vehicle for personal purposes.

The Joneses also received the following during the year:

Interest Income from First Bank of New Jersey	$420
Interest Income from Patterson, New Jersey School District	$300
Interest Income from U. S. Treasury	$250
Interest Income from General Mills Corporate Bond	$450
Qualified dividend income from Rio Tinto	$1,500
Qualified dividend income from Microsoft	$800
Qualified dividend income from Cooper Tire	$200
Qualified dividend income from Cardinal Health	$375
Qualified dividend income from Union Pacific	$140
Qualified dividend income from Proctor & Gamble	$190
Qualified dividend income from PepsiCo	$125
Qualified dividend income from Kellogg	$200
Qualified dividend income from Abbott Labs	$275
Qualified dividend income from 3M	$450
Dividend income (not qualified) from China Fund	$2,000

 

The Jones 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 Jones had the following activity in their brokerage account during the year (all transactions were reported on a Form 1099-B and basis information for each stock sale was reported to the IRS);

 

Sold	2,000 shares of Microsoft	7/1/20	$22,500
Sold	75 shares of Apple Inc.	4/15/20	$28,750
Sold	350 Shares of Cooper Tire	10/14/20	$14,700
Sold	1,000 shares of Cardinal Health	9/3/20	$35,000
Sold	50 Shares of Union Pacific	1/7/20	$2,750
Purchased	100 Shares of Proctor & Gamble	7/10/20	$7,700
Purchased	350 Shares of Cooper Tire	12/1/20	$14,000
Purchased	350 shares of PepsiCo	5/14/20	$32,000
Purchased	300 shares of Kellogg	10/14/20	$21,000
Purchased	2,000 shares of Microsoft	5/1/20	$21,000
Purchased	50 shares of Cooper Tire	6/28/20	$2,000

 

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

Purchased	200 Shares of Apple Inc.	3/8/17	$90,000
Purchased	300 Shares of Cooper Tire	1/12/16	$9,000
Purchased	100 shares of Union Pacific	9/5/19	$6,000

 

Received 1,000 shares of Cardinal Health from Diana’s father as a gift on 10/10//03.  Her father’s basis in the stock at the time of the gift was $7,000.  Fair market value of the stock at the date of the gift was $41,000.

The Joneses have a $43,000 long-term capital loss carryover from the prior tax year.

The Joneses received a New Jersey state tax refund of $400 in May of 2020.  The Joneses received the refund because they had overpaid their New Jersey state individual income tax for 2019.  On their 2019 Federal income tax return, the Joneses itemized, and deducted and received a tax benefit for all state tax income taxes paid in 2019.

Diana is a 10% owner in an advertising agency named Bright Ideas (BI) (EIN 20-1234567).  BI is a Subchapter S corporation located at 4700 MM Lane, West Rockport, ME 04865.  The company reported ordinary business income for the tax year of $150,000.  Diana received a K-1 from BI reporting her allocation of this business income.  Diana acquired the stock several years ago.  Her Basis in the stock before considering her 2020 income allocation was $92,000.  Diana is a passive owner with respect to this entity, and all her investment is at risk.  Diana received no distribution from BI in 2020.  BI is a specified service business for purposes of the Qualified Business Income Deduction, generating $150,000 of Qualified Business Income and paying $50,000 in W2 Wages to its non-shareholder employees.  

Diana is also a 20% owner in Natural Sunshine, Inc.  (“NS”) (EIN 24-9876543).  NS is a Subchapter S corporation located at 6488 WYWH Drive, Islamorada, FL 33036.  The company reported an ordinary business loss for the year of $80,000.  Diana received a K-1 from NS reporting her allocation of the business loss.  Diana acquired the stock several years ago.  Her basis in the stock before considering her 2020 loss allocation was $45,000.  Diana is a passive owner with respect to this entity.  NS is not a specified service business for the purposes of the Qualified Business Income Deduction.

The Joneses 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 (not used for business) property tax based upon value	$2,250
Mortgage interest on principal residence mortgage of $600,000	$20,550
Home Equity interest on $40,000 mortgage used to purchase new car	$3,600
Contribution to United Way	$5,000
Contribution to American Cancer Society	$7,000
Contribution to neighborhood drive to oppose development project	$500
Contribution to the Temple Mount Synagogue	$15,000

 

The Joneses also donated clothing, electronics, furniture and other household goods to the Salvation Army of Pleasantville, New Jersey on April 15, 2020.  Estimated thrift value of the goods donated was $375.

Miscellaneous Information

On September 1, The Joneses paid $200 in foreign taxes attributed to the dividend received from the China Fund.

The Joneses would like to contribute to the Presidential Election Campaign Fund.  The Joneses would also like to receive a refund (if any) of tax they may have overpaid for the year.  Their preferred method of receiving the refund is by check.

Please complete the 2020 Federal Income Tax return for Joseph and Diana Jones.  Ignore the requirement to attach the form(s) W-2 to the front page of Form 1040.  If required information is missing, use reasonable assumptions to fill in the gaps.