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 NEs 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 couples 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 Jeannies 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 Nelsons 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.

REQUIREMENTS:

A. Compute the net taxable income from Nelson Engineering.

B. Compute the net taxable income related to Jeannies Abstracts.

C. Compute the gains/(losses) related to the Nelson familys 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.

F G Tony & Jeannie Nelson Nelson Engineering 2019 Amount 702,000 Explanation/Computations as needed 702,000 196,000 38,000 15,000 4 Item Description 5 Revenue 6 Cost of Goods Sold 7 Gross Profit 8 Business Expenses: 9 Wages 10 Rent Expense 11 Taxes 12 Utilities 13 Depreciation 14 Interest 15 Travel 16 Entertainment 17 Meals 18 Other Expenses 19 Total Expenses 20 Net Business Taxable income (Loss) 3,400 1,400 1,100 2400/12*7 400+200* 2+300 800*50% 400 4,400 259,700 442,300 21 22 Self Employment Tax Deduction F G H I Explanation/Computations as needed A B E Tony & Jeannie Nelson Jeannie Abstracts 2019 4 Item Description Amount 5 Revenue 6 Cost of Goods Sold 7 Gross Profit 8 Business Expenses: 9 Wages 10 Taxes 11 Utilities 12 Other Expenses 13 Total Expenses 14 Net Business Taxable income (Loss) 15 16 Self Employment Tax Deduction G H I J K L M N B co E F Tony & Jeannie Nelson Sale of Assets 2019 Short Term Net Gain Capital Items Proceeds Cost (Loss) Gain/(Loss) Long Term Capital Gain/(Loss) 28% 25% 0/15/20 Explanation/Computations as needed 12 g Carryover 13 Total Gain /(Losses) Steps 1 & 2 14 Netting Steps: 24 NET GAIN (LOSSES) I B C D E F G H Tony & Jeannie Nelson Itemized Deductions 2019 Iram Description Amount Subteral Total Explanation Comparations as needed Medical Deduction 4 11 Total Expenses 8 Medical Expense Deductible enses Tax Expense Deductible Interest Paid SA2888888888888 Total Expenses Interest Expense Deductible Charitable Contributions 48 Total Expenses 61 Charitable Contribution Deductible Other Itemized Deductions 57 Total Expenses 59 Other Deductible 61 Total Itemized Deductions 63 Standard Deduction 65 Amount Deductible AN Tony & Jeannie Nelson Qualified Business Deduction Calculation 2019 Explanation/Computations as needed 6 Qualified business income (QBI) from Nelson Engineering 7 W-2 Wages for this activity 8 Qualified Property investment) for this activity 9 10 Qualified business income (BI) from Jeannie Abstract 11 W-2 Wages for this activity 12 Qualified Property investment) for this activity 13 19 14 Taxable income before QBI Deduction Wage based Limitation Taxable income before QBI and pref rates 15 threshold 16 17 Qualified Business Income Deduction: 18 Lesser of: QBI Calculation a) QBI from Nelson Engineering QBI from Jeannie Abstract Rate 20% Total QBI Taxoble Income Limitation b) Taxable income before QBI Deduction Income at preferential rates Excess of income over capital gains Rate NRGON 30 Wage Bosed Limitation on QB: 31 Applies Yes or No 32 If Yes then compute below. 33 Greater of: Nelson a) 50% of wages b) 25% of wages + 2.5% of qualified propert 34 35 38 Greater of: Jeannie a) 50% of wages b) 25% of wages +2.5% of qualified propert 44 Amount of QBI Deduction 45 Tony & Jeannie Nelson Summary of Tax Return 2019 Amount Subtotal Total Explanation/Computations as needed Description sry & Wege Income 6 Net income from Nelson Engineering Net income from annat Interest income 1/ Capital Gaine 10 Other Orinary me 11 Orlinary game 1) V Capital Gains 2 1 Capital Gains 14 VT Capital Gains 0/15/20 15 Other in 16 Total Grous Income 21 TAMPOR AGI 7) Adjusted Gross Income 7 Tamtred or standard Dedio 24 Quad Business Deduten Total Deduction FROM AGI 26 Taxable income Ordinary Table income 29 Capital One O V Capital d e 25 31 UT Capital One /15/20 Taxable income 3 Total Deductions FROM AGI 26 Taxable income 2 Our Tube Inne 29 UT Capital duine 28% 30 UT Capital Gaine 295 31 UT Capital in /15/20 31 Taxable income Po e Orwy come 3 Taxa ITC8 28% 36 Tax LTCS 25 37 T erce /15/20 Tower inne Other Tune. 11 Metrenment Income Tax 12 Seymoyment Tax Added Medicare Tax Talonhar Tove Tatal Tex Dede 13 Ch Tan Cedex S tal Credits Prepayment 4 Total Credit & Prepayment Amount Due Run ULI Tony & Jeannie Nelson Tax Calculations 2019 TAX Explanation/Computations as needed Income $ 442,300 $ 442,300 6 Tax on Ordinary Income 7 Bracket 8 Excess 9 Marginal Rate % 10 Tax on Excess 11 Total Tax on Ordinary Income 12 13 L/T Capital Gain 28% Max 14 Capital Gains Rate 15 Capital Gains Tax 16 17 L/T Capital Gain 25% Max 18 Capital Gains Rate 19 Capital Gains Tax 28% 20 3.8% 21 L/T Capital Gain 0/15/20% 22 Capital Gains Rate 23 Capital Gains Tax 24 25 Net Investment Income 26 NIIT Rate 27 Net Investment Income Tax 28 29 Self Employment Tax 30 Total Income Nelson Eng 31 Taxable Computation. 32 Self Employment Taxable 33 34 Social Security Taxable 35 Rate 92.35% 12.4% g2.35% 12.4% 2.9% 31 Taxable Computation. 32 Self Employment Taxable 33 34 Social Security Taxable 35 Rate 36 Social Security Tax 37 38 Medicare Taxable 39 Rate 40 Medicare Tax 41 Self Employment Tony 42 43 Total Income Jeannie Abstract 44 Taxable Computation. 45 Self Employment Taxable 46 47 Social Security Taxable 48 Rate 49 Social Security Tax 50 51 Medicare Taxable 52 Rate 53 Medicare Tax 54 Self Employment Jeannie 55 Total Self Employment 56 57 Extra Medicare 58 Tony SE Taxable 59 Jeannie SE Taxable 60 Jeannie Salary 61 Total S E Taxable 62 Extra Medicare MFJ Floor 63 Amount Subject to extra 64 Extra Rate 65 Extra Medicare 66 12.4% 2.9% 4O8 464 40,464 408,464 0,9% B 1 E EG H 1 Child Tax Credit Amount Explanation/Computations as needed 3 # of children eligible for credit 4 Full credit per child amount 5 # of other dependents 6 Per other dependent credit amount 7 Total Child Tax Credit before phase-out- 8 442,300 442,300 9 Adjusted Gross Income (AGI) 10 Phase-out threshhold 11 AGI In Excess of threshold 12 Credit Phase-out Increment 13 Amount of Credit Phase-out 14 Net Child Tax Credit 15 F G Tony & Jeannie Nelson Nelson Engineering 2019 Amount 702,000 Explanation/Computations as needed 702,000 196,000 38,000 15,000 4 Item Description 5 Revenue 6 Cost of Goods Sold 7 Gross Profit 8 Business Expenses: 9 Wages 10 Rent Expense 11 Taxes 12 Utilities 13 Depreciation 14 Interest 15 Travel 16 Entertainment 17 Meals 18 Other Expenses 19 Total Expenses 20 Net Business Taxable income (Loss) 3,400 1,400 1,100 2400/12*7 400+200* 2+300 800*50% 400 4,400 259,700 442,300 21 22 Self Employment Tax Deduction F G H I Explanation/Computations as needed A B E Tony & Jeannie Nelson Jeannie Abstracts 2019 4 Item Description Amount 5 Revenue 6 Cost of Goods Sold 7 Gross Profit 8 Business Expenses: 9 Wages 10 Taxes 11 Utilities 12 Other Expenses 13 Total Expenses 14 Net Business Taxable income (Loss) 15 16 Self Employment Tax Deduction G H I J K L M N B co E F Tony & Jeannie Nelson Sale of Assets 2019 Short Term Net Gain Capital Items Proceeds Cost (Loss) Gain/(Loss) Long Term Capital Gain/(Loss) 28% 25% 0/15/20 Explanation/Computations as needed 12 g Carryover 13 Total Gain /(Losses) Steps 1 & 2 14 Netting Steps: 24 NET GAIN (LOSSES) I B C D E F G H Tony & Jeannie Nelson Itemized Deductions 2019 Iram Description Amount Subteral Total Explanation Comparations as needed Medical Deduction 4 11 Total Expenses 8 Medical Expense Deductible enses Tax Expense Deductible Interest Paid SA2888888888888 Total Expenses Interest Expense Deductible Charitable Contributions 48 Total Expenses 61 Charitable Contribution Deductible Other Itemized Deductions 57 Total Expenses 59 Other Deductible 61 Total Itemized Deductions 63 Standard Deduction 65 Amount Deductible AN Tony & Jeannie Nelson Qualified Business Deduction Calculation 2019 Explanation/Computations as needed 6 Qualified business income (QBI) from Nelson Engineering 7 W-2 Wages for this activity 8 Qualified Property investment) for this activity 9 10 Qualified business income (BI) from Jeannie Abstract 11 W-2 Wages for this activity 12 Qualified Property investment) for this activity 13 19 14 Taxable income before QBI Deduction Wage based Limitation Taxable income before QBI and pref rates 15 threshold 16 17 Qualified Business Income Deduction: 18 Lesser of: QBI Calculation a) QBI from Nelson Engineering QBI from Jeannie Abstract Rate 20% Total QBI Taxoble Income Limitation b) Taxable income before QBI Deduction Income at preferential rates Excess of income over capital gains Rate NRGON 30 Wage Bosed Limitation on QB: 31 Applies Yes or No 32 If Yes then compute below. 33 Greater of: Nelson a) 50% of wages b) 25% of wages + 2.5% of qualified propert 34 35 38 Greater of: Jeannie a) 50% of wages b) 25% of wages +2.5% of qualified propert 44 Amount of QBI Deduction 45 Tony & Jeannie Nelson Summary of Tax Return 2019 Amount Subtotal Total Explanation/Computations as needed Description sry & Wege Income 6 Net income from Nelson Engineering Net income from annat Interest income 1/ Capital Gaine 10 Other Orinary me 11 Orlinary game 1) V Capital Gains 2 1 Capital Gains 14 VT Capital Gains 0/15/20 15 Other in 16 Total Grous Income 21 TAMPOR AGI 7) Adjusted Gross Income 7 Tamtred or standard Dedio 24 Quad Business Deduten Total Deduction FROM AGI 26 Taxable income Ordinary Table income 29 Capital One O V Capital d e 25 31 UT Capital One /15/20 Taxable income 3 Total Deductions FROM AGI 26 Taxable income 2 Our Tube Inne 29 UT Capital duine 28% 30 UT Capital Gaine 295 31 UT Capital in /15/20 31 Taxable income Po e Orwy come 3 Taxa ITC8 28% 36 Tax LTCS 25 37 T erce /15/20 Tower inne Other Tune. 11 Metrenment Income Tax 12 Seymoyment Tax Added Medicare Tax Talonhar Tove Tatal Tex Dede 13 Ch Tan Cedex S tal Credits Prepayment 4 Total Credit & Prepayment Amount Due Run ULI Tony & Jeannie Nelson Tax Calculations 2019 TAX Explanation/Computations as needed Income $ 442,300 $ 442,300 6 Tax on Ordinary Income 7 Bracket 8 Excess 9 Marginal Rate % 10 Tax on Excess 11 Total Tax on Ordinary Income 12 13 L/T Capital Gain 28% Max 14 Capital Gains Rate 15 Capital Gains Tax 16 17 L/T Capital Gain 25% Max 18 Capital Gains Rate 19 Capital Gains Tax 28% 20 3.8% 21 L/T Capital Gain 0/15/20% 22 Capital Gains Rate 23 Capital Gains Tax 24 25 Net Investment Income 26 NIIT Rate 27 Net Investment Income Tax 28 29 Self Employment Tax 30 Total Income Nelson Eng 31 Taxable Computation. 32 Self Employment Taxable 33 34 Social Security Taxable 35 Rate 92.35% 12.4% g2.35% 12.4% 2.9% 31 Taxable Computation. 32 Self Employment Taxable 33 34 Social Security Taxable 35 Rate 36 Social Security Tax 37 38 Medicare Taxable 39 Rate 40 Medicare Tax 41 Self Employment Tony 42 43 Total Income Jeannie Abstract 44 Taxable Computation. 45 Self Employment Taxable 46 47 Social Security Taxable 48 Rate 49 Social Security Tax 50 51 Medicare Taxable 52 Rate 53 Medicare Tax 54 Self Employment Jeannie 55 Total Self Employment 56 57 Extra Medicare 58 Tony SE Taxable 59 Jeannie SE Taxable 60 Jeannie Salary 61 Total S E Taxable 62 Extra Medicare MFJ Floor 63 Amount Subject to extra 64 Extra Rate 65 Extra Medicare 66 12.4% 2.9% 4O8 464 40,464 408,464 0,9% B 1 E EG H 1 Child Tax Credit Amount Explanation/Computations as needed 3 # of children eligible for credit 4 Full credit per child amount 5 # of other dependents 6 Per other dependent credit amount 7 Total Child Tax Credit before phase-out- 8 442,300 442,300 9 Adjusted Gross Income (AGI) 10 Phase-out threshhold 11 AGI In Excess of threshold 12 Credit Phase-out Increment 13 Amount of Credit Phase-out 14 Net Child Tax Credit 15