Mike Webb, married to Nancy Webb, is employed by a large pharmaceutical company and earns a salary. In addition, Mike is an entrepreneur and has two small businesses on the side, both of which operate as sole proprietorships. One is a profitable consulting business where Mike provides financial and retirement assistance to pharmacists. The other involves the manufacture of Christmas novelties in China, selling the products in gift shops in the U.S. This business is struggling. However, Mike feels the Christmas novelty business has great potential. Mike reports the following for 2013:

For 2012, Mike and Nancy's AGI was $175,000 and their actual federal income tax liability was $29,000.
a. Compute the Webbs regular federal income tax liability for 2013, including selfemployment taxes.
b. Are the Webbs subject to AMT in 2013?
c. Are the Webbs due a refund for 2013?
d. Are the Webbs subject to any underpayment penalties for 2013?

Salary Consulting practice: Revenues S150,000 $65,000 Ordinary expenses 12,000 53,000 Sole proprietorsnipd $22,000 Interest (none tax-exempt) Dividends, qualified LTCG Ordinary Expenses40,000 (18,000) 3,000 9,000 $24,000 STCL Itemized deductions: 4,000) 20,000 State and local taxes Real estate taxes Mortgage interest on personal residence Charitable contributions $14,000 5,000 10,000 8,000 37,000 Child care ex penses: The Webb's have two dependent children, ages 13 and 11, and pay child care expenses of $4,000 per year for each child. Nancy is not employed, but is a full-time student (all of 2013) at State University, majoring in Accounting. Federal income tax withheld from salary Estimated taxes paid for 2013 21,000 14,000