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.

Required:

Using the appropriate forms and schedules, compute the Coles' Federal income tax for 2021. Disregard the alternative minimum tax (AMT) and the various education credits.

• Make realistic assumptions about any missing data.
• Enter all amounts as positive numbers.
• If an amount box does not require an entry or the answer is zero, enter "0".
• If required, round all dollar amounts to the nearest dollar.
• It may be necessary to complete the tax schedules before completing Form 1040.
• Use the included tax rates schedules to compute the tax. When computing the tax liability, do not round your immediate calculations. If required, round your final answers to the nearest dollar.u

Form 1040 Form 1040 (2021) David R, and Ella M. Cole 123456788 Page 2 16 Tax (see Instructions). Check if any from Form(s): 18814249723 17. Amount from Schedule 2, line 3 18 Add lines 16 and 17 19 Nonrefundable child tax credit or credit for other dependents from schedule 8312 20 Amount from Schedule 3, line 8. 21 Add lines 19 and 20 22 Subtract line 21 from line 18. If zero or less, enter - 0 - 23 Other taxes, including self-employment tax, from schedule 2, line 21. 24 Add lines 22 and 23. This is your total tax 25 Federal income tax withheld from: a Form(s) W-2 b Form(s) 1099 c. Other forms (see instructions) Form to40 c Other forms (see instructions) ............... 25c d Add lines 25 a through 25c If you have a 262021 estimated tax payments and amount applied from 2020 return qualifying child, 27 a Earned income credit (EIC) attach Sch. EIC. Check here if you were born after January 1, 1998, and before January 2, 2004, and you satisfy all the other requirements for taxpayers who are at least age 18, to claim the EIC. See instructions 27a b Nontaxable combat pay election.. 27b c. Prior year (2019) earned income 27c 28 Refundable child tax credit or additional child tax credit from Schedule 8812. 29 American opportunity credit from Form 8863 , line 8 30 Recovery rebate credit. See instructions 31 Amount from Schedule 3, line 15. \begin{tabular}{|l|} \hline 28 \\ \hline 29 \\ \hline 30 \\ \hline 31 \\ \hline \end{tabular} 32 Add lines 27a and 28 through 31 . These are your total other payments and refundable credits. 33 Add lines 25d, 26, and 32. These are your total payments 32