Note: This problem is for the 2023 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 2023. He maintains his own office and pays for all business expenses. The Coles are adequately covered by the medical plan provided by Ella's employer but have chosen not to participate in its 401(k) retirement plan.

David's employment-related expenses for 2023 are summarized below:

Airfare	$8,800
Lodging	4,990
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 holidays to 18 of his major clients.

In addition, David drove his 2021 Ford Expedition 11,000 miles for business and 3,000 for personal use during 2023. He purchased the Expedition on August 15, 2020; David always has used the automatic (standard) mileage method for tax purposes. Parking and tolls relating to business use total $340 in 2023.

When the Coles purchased their present residence in April 2020, 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 (except for mortgage interest and property taxes; see below) are reported 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 the year are summarized 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 W-2 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.

In addition to those items already mentioned, the Coles had the following receipts during 2023.

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 2022		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. Late last year Sarah unexpectedly died. Unknown to Ella and David, Sarah had a life insurance policy and a savings account (with David as the designated beneficiary of each). In 2022, the Coles purchased two ATVs for $14,000. After several near mishaps, they decided that the sport was too dangerous. In 2023, they sold the ATVs to their neighbor.

Additional expenditures for the year include the following:

Funeral expenses for Sarah		$4,500
Taxes
Real property taxes on personal residence	$6,400
Colorado state income tax due (paid in April 2023 for tax year 2022)	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 2023, 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

• During the year, the Coles purchased $20,000 of bitcoin. 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 year's tax liability. David will have a self-employment tax liability.

Required:

Using the appropriate forms and schedules, compute David and Ella's joint Federal income tax for 2023. Disregard the alternative minimum tax (AMT) and any 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 rate schedules to compute the tax. When computing the tax liability, do not round your intermediate calculations. If required, round your final answers to the nearest dollar.