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 Christmas holidays to 18 of his major clients.

During 2023, David drove his 2021 Ford Expedition 11,000 miles for business and 3,000 miles for personal use. He purchased the Expedition on August 15,2020, and has always 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 450of 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 2023(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 2023 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 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.

Besides the 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 2022510

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 2022, 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 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 2023 include:

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)3106,710

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.