You have been hired as a tax advisor for Fred and Ethels 2019 tax return. Fred and Ethel are married and have two children, Luci, age 23 and Ricky age 12. Luci is currently in college at State University getting her masters degree in accounting. Fred works as a design engineer for a manufacturing firm while Ethel runs a candy business from their home. Ethels candy business consists of making candy items for sale at fairs that are held periodically at various locations. Ethel spends considerable time and effort on her candy business and it has been consistently profitable over the years. Fred and Ethel receive a child tax credit (nonrefundable) of $1,000. Fred and Ethel own a home and pay interest on their home loan (balance of $220,000) and a personal loan to pay for Lucis college expenses (balance of $35,000). Neither Fred nor Ethel is blind or over age 65. Fred and Ethel have summarized the income and expenses they expect to report this year as follows:

Income: Freds salary $ 100,000 Ethels craft sales 20,400 Interest from certificate of deposit 1,650 Interest from Treasury bond funds 727 Interest from municipal bond funds 920 Gain from the sale of Facebook stock purchased in 2015 5,000

Gain from the sale of Spotify stock purchased in the 2019 IPO 2,000

Gambling winnings 200

Expenditures: Federal income tax withheld from Freds wages $ 15,700 State income tax withheld from Freds wages 6,300 Social Security tax withheld from Freds wages 7,482 State sales tax paid 1,150 Home mortgage interest 14,000

Interest on Masterdebt credit card 2,300 Freds employee expenses (unreimbursed) 2,400 Tax Return Preparation fees 500

Cost of Ethels candy supplies 3,000 Postage for mailing candy 200 Travel and lodging for fairs 2,230 Meals during fairs 800 Self-employment tax on Ethels candy income 2000

Interest on loans to pay Lucis tuition 1,600 Lucis room and board at college 12,620

Ethel paid a total of $3,400 in health insurance premiums during the year (not through an exchange). Ethel was not eligible for health insurance through Freds employer. Besides the health insurance premiums they paid medical expenses of 5,690 for a broken ankle and 3,000 for Lasik eye surgery (they received no insurance reimbursement). They also incurred $450 of other medical expenses for the year. Fred and Ethel paid $4,500 of real estate taxes on their residence and also paid $500 to the developer of their subdivision, because he had to replace the sidewalk in certain areas of the subdivision. Additionally, they paid a $200 property tax based on the states estimate of the value of their car. Ethel sustained $2,000 in gambling losses over the year (mostly horse-racing bets).

Fred and Ethel made several charitable contributions throughout the year. They contributed stock in ZYX Corp. to the Red Cross. On the date of the contribution, the FMV of the donated shares was $1,000 and her basis in the shares was $400. They originally bought the ZYX Corp. stock in 2008. They also contributed $500 cash to their church.

Find (and clearly label) the following:

Gross Income

AGI

Taxable income

Tax liability

Calculate the amount of their refund or payment