Note: This problem is for the 2021 tax year. David R. and Ella M. Cole (ages 39 and 38, respectively) are husband and wife who live at 1820 Elk Avenue, Denver, CO 80202. David is a self-employed consultant specializing in retail management, and Ella is a dental hygienist for a chain of dental clinics. David earned consulting fees of $145,000 in 2021. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ellas employer but have chosen not to participate in its 401(k) retirement plan. David's employment-related expenses for 2021 are summarized below. Airfare $8,800 Lodging 4,835 Meals from restaurants (during travel status) 2,400 Entertainment 3,600 Ground transportation (e.g., limos, rental cars, and taxis) 800 Business gifts 900 Office supplies (includes postage, overnight delivery, and copying) 1,500 The entertainment involved taking clients to sporting and musical events. The business gifts consisted of $50 gift certificates to a national restaurant. These were sent by David during the Christmas holidays to 18 of his major clients. In addition, David drove his 2019 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2021. He purchased the Expedition on August 15, 2018, and has always used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2021. When the Coles purchased their present residence in April 2018, they devoted 450 of the 3,000 square feet of living space to an office for David. The property cost $440,000 ($40,000 of which is attributable to the land) and has since appreciated in value. Expenses relating to the residence in 2021 (except for mortgage interest and property taxes; see below) are as follows: Insurance $2,600 Repairs and maintenance 900 Utilities 4,700 Painting office area; area rugs and plants (in the office)* 1,800 *Treat as a direct office in home expense. In terms of depreciation, the Coles use the MACRS percentage tables applicable to 39-year nonresidential real property. As to depreciable property (e.g., office furniture), David tries to avoid capitalization and uses whatever method provides the fastest write-off for tax purposes. Ella works at a variety of offices as a substitute when a hygienist is ill or on vacation or when one of the clinics is particularly busy (e.g., prior to the beginning of the school year). Assume that Ella is an employee (not an independent contractor). Besides her transportation, she must provide and maintain her own uniforms. Her expenses for 2021 appear below. Uniforms $690 State and city occupational licenses 380 Professional journals and membership dues in the American Dental Hygiene Association 340 Correspondence study course (taken online) dealing with teeth whitening procedures 420 Ella's salary for the year is $42,000, and her Form W2 for the year shows income tax withholdings of $4,000 (Federal) and $1,000 (state) and the proper amount of Social Security and Medicare taxes. Besides the items already mentioned, the Coles had the following receipts during 2021. Interest income State of Colorado general purpose bonds $2,500 IBM bonds 800 Wells Fargo Bank 1,200 $4,500 Federal income tax refund for year 2020 510 Life insurance proceeds paid by Eagle Assurance Corporation 200,000 Inheritance of savings account from Sarah Cole 50,000 Sales proceeds from two ATVs 9,000 For several years, the Coles' household has included David's divorced mother, Sarah, who has been claimed as their dependent. In late December 2020, Sarah unexpectedly died of heart attack in her sleep. Unknown to Ella and David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each). In 2020, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2021, they sold the ATVs to their neighbor. Additional expenditures for 2021 include: Funeral expenses for Sarah $4,500 Taxes Real property taxes on personal residence $6,400 Colorado state income tax due (paid in April 2021 for tax year 2020) 310 6,710 Mortgage interest on personal residence (Rocky Mountain Bank) 6,600 Contributions to traditional IRAs for Ella and David ($6,000 + $6,000) 12,000 In 2021, the Coles made quarterly estimated tax payments of $6,000 (Federal) and $500 (state) for a total of $24,000 (Federal) and $2,000 (state). Relevant Social Security numbers are: David Cole 123-45-6788 Ella Cole 123-45-6787 The Coles have never owned or used any virtual currency. The Coles received the appropriate coronavirus recovery rebates (economic impact payments); related questions in ProConnect Tax should be ignored. They do not want to contribute to the Presidential Election Campaign Fund. Also, the Coles want any overpayment of tax refunded to them and not applied toward next years tax liability. David will have a self-employment tax liability.

Complete the Cole's Sdedule 2 . SCHEDULE 2 (Form 1040) Denartment of the Treasurv Schedule 2 (Farm 1040) 2021 David R. and Ella M. Cole 123456788 Page 2 \begin{tabular}{|l|l|} Part II Other Taxes (continued) \end{tabular} 17 Other additional taxes: a Recapture of other crewiss. List type, form number, and amount b Recapture of federal martgage subsidy. If you sold your home in 2021, see instructions. C Additional tax on HSA distributions. Attach Form 8889 d Additional tax on an HSA because you didn't remain an eligible individual. Attach Form BEn9. e Additional tax on Archer MSA distributions. Attach Form 8853. f Additional tax on Medicare Advantage MSA distributions. Attach Form 8853. g Recapture of a charitable contribution deduction related to a fractional interest in tangible personal property. h Income you received from a nonqualified deferred compensation plan that fails to meet the requirements of section 409A. i Compensation you received from a nonqualified deferred campensation plan. described in section 457A. j Section 72(m)(5) excess benelits tax. k Golden parachute payments I Tax on accumulation distribution of trusts. m Excise tax on insider stock compensation from an expatriated corporation . n Look-back interest under section 167(9) or 460(b) from Foem 8697 or 8966 . . . . o Tax on non-effectively connected income for any part of the year you were a nonresident alien from form 1040-NR. p Any interest from Form 8621 , line 168, relating to distributions from, and dispositions of, stock of a section 1291 fund. q. Any interest from Form $621; line 24 . z Any other taxes. List type and anount 18 17a 17b 17c 17d 17e 17f 17g 17h Schiedule B Complete Coles' Schedule B for 2021. \begin{tabular}{l|r|} SCHEDULE B & Interest and Ordinary Dividends \\ \begin{tabular}{l|l} (Form 1040) \end{tabular} \\ Department of the Treasury Intermal Revenue Service (99) & Go to wwingirs.0074 \\ \hline \end{tabular} \begin{tabular}{l|l|l} \hline Name(s) shown on retum & Your social security number \\ David R. and Ella M. Cole & 123456763 \\ \hline \end{tabular} Complete Cales' Schedule C for 2021. Sthedule C (Form 1040) 2021 David R. Cole 123456788 Page 2 Part III Cost of Goods Sold (see instructions) 33 Method(S) used to value dooing inventory: a Q Cost b Lower of cost or market Cother \{attach explanation) 34. Was there any change in determining quantities, costs, or valuations between opening and dosing inventory? If "Yes," attach explanationt. 35 Inventory at beginning of year. If different from last year's closing inwentory, attach explanation . . . . . 36 Purchases less cost of items withdrawn for personal use. 37 Cost of labor. Do not include any amounts paid to yourself. 38 Materials and suppies. 39 Other costs. 40 Add lines 35 through 39 . 41 Inventary at end of year 42 Cost of goods sold. Subtract line 41 from line 40 . Enter the restit here and on line 4..2. Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses an line 9 and are not required to file Form 4562 for this business. See the ifstructions for line 13 to find out if you must file Form 4562 . 43 When did you place your vehicle in service for business purposes? \{monthydayfyear\} 44 Or the total number of miles you drove your ve'ride during 2021, enter the number of miles you used your vehide for: a Business b Commuting (see instructions) c Other: 45 Was your velicle available for personal use during off-duty hours? 46 Do you for your spouse\} have another vehicle available for personal use? . 47a Do you have evidence to support your deduction? b If "Yes," is the evidence written? Yes No Part V Other Expenses. List below business expenses not induded on lines 526 or line 30. Complete the Cole's Sdedule 2 . SCHEDULE 2 (Form 1040) Denartment of the Treasurv Schedule 2 (Farm 1040) 2021 David R. and Ella M. Cole 123456788 Page 2 \begin{tabular}{|l|l|} Part II Other Taxes (continued) \end{tabular} 17 Other additional taxes: a Recapture of other crewiss. List type, form number, and amount b Recapture of federal martgage subsidy. If you sold your home in 2021, see instructions. C Additional tax on HSA distributions. Attach Form 8889 d Additional tax on an HSA because you didn't remain an eligible individual. Attach Form BEn9. e Additional tax on Archer MSA distributions. Attach Form 8853. f Additional tax on Medicare Advantage MSA distributions. Attach Form 8853. g Recapture of a charitable contribution deduction related to a fractional interest in tangible personal property. h Income you received from a nonqualified deferred compensation plan that fails to meet the requirements of section 409A. i Compensation you received from a nonqualified deferred campensation plan. described in section 457A. j Section 72(m)(5) excess benelits tax. k Golden parachute payments I Tax on accumulation distribution of trusts. m Excise tax on insider stock compensation from an expatriated corporation . n Look-back interest under section 167(9) or 460(b) from Foem 8697 or 8966 . . . . o Tax on non-effectively connected income for any part of the year you were a nonresident alien from form 1040-NR. p Any interest from Form 8621 , line 168, relating to distributions from, and dispositions of, stock of a section 1291 fund. q. Any interest from Form $621; line 24 . z Any other taxes. List type and anount 18 17a 17b 17c 17d 17e 17f 17g 17h Schiedule B Complete Coles' Schedule B for 2021. \begin{tabular}{l|r|} SCHEDULE B & Interest and Ordinary Dividends \\ \begin{tabular}{l|l} (Form 1040) \end{tabular} \\ Department of the Treasury Intermal Revenue Service (99) & Go to wwingirs.0074 \\ \hline \end{tabular} \begin{tabular}{l|l|l} \hline Name(s) shown on retum & Your social security number \\ David R. and Ella M. Cole & 123456763 \\ \hline \end{tabular} Complete Cales' Schedule C for 2021. Sthedule C (Form 1040) 2021 David R. Cole 123456788 Page 2 Part III Cost of Goods Sold (see instructions) 33 Method(S) used to value dooing inventory: a Q Cost b Lower of cost or market Cother \{attach explanation) 34. Was there any change in determining quantities, costs, or valuations between opening and dosing inventory? If "Yes," attach explanationt. 35 Inventory at beginning of year. If different from last year's closing inwentory, attach explanation . . . . . 36 Purchases less cost of items withdrawn for personal use. 37 Cost of labor. Do not include any amounts paid to yourself. 38 Materials and suppies. 39 Other costs. 40 Add lines 35 through 39 . 41 Inventary at end of year 42 Cost of goods sold. Subtract line 41 from line 40 . Enter the restit here and on line 4..2. Part IV Information on Your Vehicle. Complete this part only if you are claiming car or truck expenses an line 9 and are not required to file Form 4562 for this business. See the ifstructions for line 13 to find out if you must file Form 4562 . 43 When did you place your vehicle in service for business purposes? \{monthydayfyear\} 44 Or the total number of miles you drove your ve'ride during 2021, enter the number of miles you used your vehide for: a Business b Commuting (see instructions) c Other: 45 Was your velicle available for personal use during off-duty hours? 46 Do you for your spouse\} have another vehicle available for personal use? . 47a Do you have evidence to support your deduction? b If "Yes," is the evidence written? Yes No Part V Other Expenses. List below business expenses not induded on lines 526 or line 30