Tony and Jeannie Nelson are married and file a joint return. They have four children whose ages are: 12,15,19 & 23. The three youngest live at home with their parents and qualify as their dependents. The oldest Roger got married on 5/5 2019 and lives with his wife, Jane. The 19-year old Tabitha is studying Fine Arts at Savannah College of Art & Design. During the summer she helps her mother put together the art exhibits. They provide you with the following information regarding their 2019 upcoming tax return: 1) Tony Nelson is an aerospace engineer he runs an engineering firm, Nelson Engineering (NE), as a sole proprietorship since 2010. a) NE has very lucrative contracts with numerous aerospace companies and during 2019 it earned $702,000. b) NE rents an office downtown where they meet with clients and conducts business. The rent includes all utilities. NE paid $38,000 in rent expense in 2019. In December 2019 the landlord offered to maintain the same yearly rent cost and Tony could receive an additional month's rent for free if he prepaid his 2020 year rent in advance. Tony agreed and paid an additional $38,000 on December 1, 2019 to cover January 2020 through January 2021 rent. c) NE obtained a business loan from SunTrust Bank and paid $2,400 in prepaid interest for June 1, 2019 through May 30, 2020. d) NE has a few employees, including an electrical engineer, a part-time engineering intern and an office manager. The combined wages for these employees is $196,000. Payroll taxes including for these employees is $15,000. e) Tony took different business clients to see several home Miami Heat games followed by dinners at nearby restaurants where business was discussed. The meals were not considered lavish. The total cost for the Heat tickets and accompanying meals were $1,200 and $800, respectively. f) In March 2019, Tony flew to a two-day engineering convention held in Phoenix, AZ requiring a two-night hotel stay. While there, Tony noted that the convention dress code was formal when he thought it would be casual. Tony immediately purchased a business suit for $300 (not considered lavish) at a nearby department store. All food costs were covered by the convention organizers. Other trip costs that Tony paid were airplane ticket $400 and hotel lodgings cost $200ight. g) The depreciation for the year on the fixed assets owned by NE are estimated to total $3,400. h) All of NE's business transactions are properly documented and supported by receipts/invoices. In addition to deductible portion of the items listed above the business will have an additional $4,400 of deductible other expenses. 2) Jeannie Nelson is an artist; she works part-time teaching art 2 days a week at a magnet art school in their town. She earned $10,000 in salary from Cocoa Beach, School of the Arts, the following items were withheld from her gross wages, $1,000 federal income taxes, $100 state income tax, $620 social security and $145 Medicare. She is not covered under their insurance plan as she only works 15 hours a week. She also volunteers 5 hours a week with the Girl Scouts of America as an art instructor. 3) Jeannie is known for beautiful Arabian influenced abstracts. On May and August of this past year she had an exhibition and sold paintings at each event. She estimates that the cost of each painting in canvas and supplies is about $375. a) The sales are as follows: i) May - 16 paintings for a total of $ 17,200 ii) August - 10 paintings for a total of $ 12,000 b) She paints in a studio located in a separate building on the property of their home. The expenses related to the studio allocated on the basis of square footage are as follows: i) Depreciation $3,500 ii) Taxes $1,900 iii) Utilities $2,400 4) The Nelsons sold the following assets/investments during this year: a) 4/4/2019 sold for $20,400 common stock in York Co. that was purchased for $12,000, on 2/14/2011, The shares of York Co are qualified small business stock under $1202. b) 7/1/2019 sold 200 shares of common stock in New Co. for $21,000. They had purchased 100 shares on 8/7/2016 for $7,500 and 100 shares on 8/7/2017 for $ 8,250. c) 7/15/2019 sold 150 shares of common stock of City Co for $12,000 total that were purchased for $13,250 on 1/18/2019. d) 8/5/2019 sold for $27,000 antique coins that Jeannie inherited from her great-aunt on January 16, 2019 when its FMV was $25,500. Her great aunt had a basis in the coin of $2,000. e) 10/1/2019, they sold a portion of a parcel of land with a small building for $45,000 that had a basis of $12,000 and was purchased in 2002. $30,000 of the gain is unrecaptured $1250 property. f) 10/15/2019 sold stock in Space Explorers Inc. for $32,000 that they had purchased on 8/14/2015 for $28,000. g) The Nelsons have a Long-term loss carryover of $12,000 from 2018. 5) On April 13 of 2019, the couple paid their $1,000 in state taxes due with their 2018 state tax return. They paid state income tax for 2019 of $3,400. The couple's estimated state and local sales taxes for 2019 will be $2,900. The property taxes paid on their principal residence for 2019 is $7,300, excluding any amounts allotted to the artist studio. 6) On October 1st they donated a parcel with a separate small building to the Girl Scouts of America for use as an art studio. They had purchased the acres in 2002 and recently divided a portion for sale (see 4e above). This portion has a basis of $61,500. A professional appraiser determined the fair market value of the property was $97,000 on September 24th of 2019. 7) This year the Nelsons had several medical expenses not reimbursed by insurance these are as follows: a) Tony & Jeannie both received corrective eye surgery, at a total cost of $ 6,200 b) $ 2,300 for braces for the 12-year old c) $ 1,800 in co-payments for covered medical procedures. d) $ 400 in payments for over the counter medications. e) $2,500 at the urgent care clinic for Jeannie's brother Sam who hurt his back helping her set up the art exhibits in May. He is not their dependent. f) They pay $7,500 in health insurance premiums to cover the family. 8) The Nelson's spent $ 14,100 in home mortgage interest on their original acquisition cost of $800,000 from 2014. They do not have any additional mortgage debt. 9) The Nelsons paid quarterly estimated tax payments of $20,000 per quarter, based on their 2018 liability which was a total of $72,000. Using the above information answer the following questions using the excel spreadsheet attached, be sure to show your work: A. Compute the net taxable income from Nelson Engineering. B. Compute the net taxable income related to Jeannie's Abstracts. C. Compute the gains/(losses) related to the Nelson family's sale of assets and the appropriate classifications D. Compute the itemized deductions of the Nelson family. E. Review and compute the amount deductible as QBI. F. Compute the Adjusted Gross Income of the Nelsons. G. Compute the taxable income for the Nelsons. H. Based on the information provided determine if the Nelsons qualify for any tax credits and if so, compute the credit(s). I. Compute the total tax liability for 2019 taking into account the character of the taxable income computed in part G above. Understanding the spreadsheet. The spreadsheet contains several sheets where information needs to be entered. Many of the items on the first sheet, titled "Summary" are input on other sheets within the spreadsheet and carryover to the summary sheet. Within the spreadsheet items that require your attention and input are highlighted in a blue background. Lines where the amount is computed in another area of the spreadsheet are indicated in orange and double underlined. Thus, you should not need to input anything in these cells. Computed cells are in grey. These cells also do not require input. Tony & Jeannie Nelson Summary of Tax Return 2019 Amount Subtotal Totals Explanation/Computations as needed Description Salary & Wage Income Net Income from Nelson Engineering Net Income from Jeannie Art Interest Income S/T Capital Gains Other Ordinary Income Ordinary Income L/T Capital Gains 28% L/T Capital Gains 25% L/T Capital Gains 0/15/20 Other Income Total Gross Income Adjustments: lllll Total Adjustments FOR AGI Adjusted Gross Income Ite mized or Standard Deduction Qualified Business Deduction Total Deductions FROM AGI Taxable income Ordinary Taxable income L/T Capital Gains 28% L/T Capital Gains 25% L/T Capital Gains 0/15/20 Taxable Income Tax on Ordinary Income Tax on LTCG 28% Tax on LTCG 25% Tax on LTCG 0/15/20 Tax on Taxable income Other Taxes: Net Investment Income Tax Self-Employment Tax Additional Medicare Tax Total Other Taxes Total Tax Credits: Child Tax Credit Total Credits Pre payments Total Credits & Pre payments Amount Due (Refund) Tony & Jeannie Nelson Nelson Engineering 2019 Amount Explanation/Computations as needed Item Description Revenue Cost of Goods Sold Gross Profit Business Expenses: Wages Rent Expense Taxes Utilities Depreciation Interest Travel Entertainment Meals Other Expenses Total Expenses Net Business Taxable Income (Loss) Self Employment Tax Deduction Tony & Jeannie Nelson Jeannie Abstracts 2019 Amount Explanation Computations as needed Item Description Revenue Cost of Goods Sold Gross Profit Business Expenses: Wages Taxes Utilities Other Expenses Total Expenses Net Business Taxable Income (Loss) Self Employment Tax Deduction Tony & Jeannie Nelson Sale of Assets 2019 Short Term Net Gain Capital Cost (Loss) Gain/(Loss) Long Term Capital Gain/(Loss) 28% 25% 0/15/20 Items Proceeds Explanation/Computations as needed g Carryover Total Gain / (Losses) Steps 1 & 2 Netting Steps: NET GAIN (LOSSES) Tony & Jeannie Nelson Itemized Deductions 2019 Subtotal Total Explanation/Computations as needed Item Description Amount Medical Deduction Total Expenses Medical Expense Deductible Taxes Paid Total Expenses Tax Expense Deductible Interest Paid Total Expenses Interest Expense Deductible Charitable Contributions Total Expenses Charitable Contribution Deductible Other itemized Deductions Total Expenses Other Deductible Totalitemized Deductions Standard Deduction Amount Deductible Tony & Jeannie Nelson Qualified Business Deduction Calculation 2019 Explanation/Computations as needed Qualified business income (QBI) from Nelson Engineering W-2 Wages for this activity Qualified Property (investment) for this activity Qualified business income (QBI) from Jeannie Abstract W-2 Wages for this activity Qualified Property investment) for this activity Taxable income before QBI Deduction Wage based Limitation Taxable income before QBI and pref rates threshold 20% Qualified Business Income Deduction: Lesser of: QBI Calculation a) QBI from Nelson Engineering QBI from Jeannie Abstract Rate Total QBI Taxable Income Limitation b) Taxable income before QBI Deduction Income at preferential rates Excess of income over capital gains Rate 20% Wage Based Limitation on QBI: Applies Yes or No If Yes then compute below: Greater of: Nelson a) 50% of wages b) 25% of wages + 2.5% of qualified property Greater of: Jeannie a) 50% of wages b) 25% of wages + 2.5% of qualified property Amount of QBI Deduction Tony & Jeannie Nelson Tax Calculations 2019 Income TAX Explanation/Computations as needed Tax on Ordinary Income Bracket Excess Marginal Rate % Tax on Excess Total Tax on Ordinary Income L/T Capital Gain 28% Max Capital Gains Rate Capital Gains Tax L/T Capital Gain 25% Max Capital Gains Rate Capital Gains Tax L/T Capital Gain 0/15/20% Capital Gains Rate Capital Gains Tax Net Investment Income NIIT Rate Net Investment Income Tax 3.8% Self Employment Tax Total Income Nelson Eng 92.35% Taxable Computation. Self Employment Taxable Social Security Taxable Rate Social Security Tax Medicare Taxable Rate Medicare Tax Self Employment Tony Totallncome leannie Abstract 92.35% Taxable Computation. Self Employment Taxable Social Security Taxable Rate Social Security Tax 12.4% 2.9% Medicare Taxable Rate Medicare Tax Self Employment Jeannie TotalSelf Employment Extra Medicare Tony SE Taxable Jeannie SE Taxable Jeannie Salary TotalS E Taxable Extra Medicare MF) Floor Amount Subject to extra Extra Rate Extra Medicare 0.9% Child Tax Credit Amount Explanation/Computations as needed # of children eligible for credit Full credit per child amount # of other dependents Per other dependent credit amount Total Child Tax Credit before phase-out Adjusted Gross Income (AGI) Phase-out threshhold AGI In Excess of threshold Credit Phase-out Increment Amount of Credit Phase-out Net Child Tax Credit