Denise Lopez, age 40, is single and has no dependents. She is employed as a legal secretary by Legal Services, Inc. She owns and operates Typing Services located near the campus of Florida Atlantic University at 1986 Campus Drive, Boca Raton, FL 33434. Denise is a material participant in the business, she is a cash basis taxpayer, and her Social Security number is 123-45-6781. Denise lives at 2020 Oakcrest Road, Boca Raton, FL 33431. Denise wants to designate $3 to the Presidential Election Campaign Fund. She has never owned or used any virtual currency. Denise received the appropriate coronavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored. During 2021, Denise had the following income and expense items:

a. $100,000 salary from Legal Services, Inc.

b. $20,000 gross receipts from her typing services business.

c. $700 interest income from Third National Bank.

d. $1,000 Christmas bonus from Legal Services, Inc.

e. $60,000 life insurance proceeds on the death of her sister.

f. $5,000 check given to her by her wealthy aunt.

g. $100 won in a bingo game.

h. Expenses connected with Typing Services:

i. $9,500 interest expense on a home mortgage (paid to Boca Raton Savings and Loan).

j. $15,000 fair market value of silverware stolen from her home by a burglar on October 12, 2021. Denise had paid $14,000 for the silverware on July 1, 2011. She was reimbursed $10,000 by her insurance company.

k. Denise had loaned $2,100 to a friend, Joan Jensen, on June 3, 2017. Joan declared bankruptcy on August 14, 2021, and was unable to repay the loan. Assume that the loan is a bona fide debt.

l. Legal Services, Inc., withheld Federal income tax of $15,000 and the appropriate amount of FICA tax from her wages.

m. Alimony of $10,000 received from her former husband, Omar Guzman; divorce was finalized on December 2, 2013, and no changes have been made to the divorce decree since that time.

n. Interest income of $800 on City of Boca Raton bonds.

o. Denise made estimated Federal tax payments of $2,000.

p. Sales taxes from the sales tax table of $953.

q. Property taxes on her residence of $3,200.

r. Charitable contribution of $2,500 to her alma mater, Citrus State College.

s. On November 1, 2021, Denise was involved in an automobile accident. At the time of the accident, her automobile’s FMV was $45,000. After the accident, the automobile’s FMV was $38,000. Denise acquired the car on May 2, 2020, at a cost of $52,000. Denise’s car was covered by insurance, but because the policy had a $5,000 deduction clause, Denise decided not to file a claim for the damage.

Part 1—Tax Computation

Compute Denise Lopez’s 2021 Federal income tax payable (or refund due), and complete her 2021 Federal tax return using appropriate forms and schedules. Suggested software: ProConnect Tax.

Part 2—Tax Planning

In 2022, Denise plans to continue her job with Legal Services, Inc. As a result, items a, d, and l will recur in 2022. Denise plans to continue her typing services business (refer to item b) and expects gross receipts of $34,000. She projects that all business expenses (refer to item h) will increase by 10%, except for office rent, which, under the terms of her lease, will remain the same as in 2021. Items e, f, g, j, k, and s will not recur in 2022. Items c, i, m, n, p, q, and r will be approximately the same as in 2021. Based on this information, Denise would like you to provide a tentative computation of her 2022 taxable income. Prepare a memo for her tax files that details this computation.

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Office rent Supplies Utilities and telephone Wages to part-time typists Payroll taxes Equipment rentals $7,000 4,400 4,680 5,000 500 3,000