Reference no: EM133553286

Assignment: Take Home

Tony and Jeannie Nelson are married and file a joint return. They have four children whose ages are: 5,17,19& 23. The two youngest live at home all year with their parents and qualify as their dependents. The oldest Roger got married on 5/5 2022and lives with his wife, Jane. The 19-year-old Tabitha is a full-time student working towards her bachelor's in fine arts at Savannah College of Art & Design. She lives in Savannah, GA during the academic year and returns to her parents' home during breaks.

Tony and Jeannie provide you with the following information regarding their upcoming 2022tax return:

I. Tony Nelson is an aerospace engineer he runs an engineering firm, Nelson Engineering(NE), as a soleproprietorship since 2010.

1. NEhas very lucrative contracts with numerous aerospace companies andduring 2022it will earn $647,000.

2. NE rents an office downtown where they meet with clients and conducts business. The rent includes all utilities. NEwill pay $36,000 in rent expense for 2022. The landlord offered to maintain the same yearly rent cost and Tony could receive an additional month's rent for free if he prepays his 2023-year rent in advance. Tony has agreed and will pay an additional $36,000 on December 1, 2022, to cover January 2023 through January 2024 rent.

3. NE obtained a business loan from SunTrust Bank and paid $2,500 in prepaid interest for July 1,2022 through June 30, 2023.

4. NE has a few employees, including an electrical engineer, a part-time engineering intern and an office manager. The combined wages for these employees will be $221,000. Payroll taxes for these employees is estimated as $18,000.

5. Tony took different business clients to see several home Miami Heat games during January and February of 2022followed by dinners at nearby restaurants where business was discussed. The meals were not considered lavish. The total cost for the Heat tickets and accompanying meals were $1,400 and $700, respectively.

6. In April 2022, Tony flew to a two-day engineering convention held in Phoenix, AZ requiring a two-night hotel stay. While there, Tony noted that the convention dress code was business formal when he thought it would be casual. Tony immediately purchased a business suit for $400 (not considered lavish) at a nearby department store. All food costs were covered by the convention organizers. Other trip costs that Tony paid wereairplane ticket $480 andhotel lodgings cost $160/night for two nights.

7. The depreciation for the year on the fixed assets owned by NE are estimated to total $4,500.

8. All of NE's business transactions are properly documented and supported by receipts/invoices. In addition to deductible portion of the items listed above the business will have an additional $3,800 of deductible other expenses.

II. Jeannie Nelson is an artist;she works part-time teaching art 2 days a week at a magnet art school in their town. She earned $12,000 in salary from Cocoa Beach, School of the Arts, the following items were withheld from her gross wages, $1,200 federal income taxes, $120 state income tax, $744 social security, and $174 Medicare. She is not covered under their insurance plan as she only works 15 hours a week. She also volunteers 5 hours a week with the Girl Scouts of America as an art instructor.

III. Jeannie is known for beautiful Arabian influenced abstracts. During May and August of this past year she had a virtual exhibition and sold paintings at each event. She estimates that the cost of each painting in canvas and supplies is about $425.

1. The sales are as follows:

a. May - 19 paintings for a total of $ 24,000
b. August - 12 paintings for a total of $ 18,000

2. She paints in a studio located in a separate building on the property of their home. The expenses related to the studio allocated on the basis of square footage are as follows:

a. Depreciation $3,600
b. Taxes $1,900
c. Utilities $3,400

IV. The Nelsonswho utilize the specific identification method for valuing their investments to minimize gains, had the following assets/investmentsactivities occur during this year:

1. 4/5/2022 sold for $20,000 common stock in York Co. that was purchased for $14,000, on 2/14/2009, The shares of York Co are qualified small business stock under §1202.

2. 7/1/2022sold 200 shares of common stock in New Co. for $17,000. They had purchased 100 shares on 8/7/2016 for $6,500 and 200 shares on 8/7/2017 for $ 15,000.

3. 9/15/2022sold 150 shares of common stock of City Co for $14,000 total that were purchased for $19,500 on 3/18/2022.

4. 8/5/2022sold for $28,000 antique coins that Jeannie inherited from her great-aunt on January 16, 2022 when its FMV was $26,500. Her great aunt had a basis in the coin of $2,000.

5. 10/1/2022, they sold a portion of a parcel of land with a small building for $62,000 that had a basis of $23,000 and was purchased in 2002. $25,000 of the gain is unrecaptured §1250 property.

6. 8/15/2022 sold stock in Space Explorers Inc. for $31,500 that they had purchased on 8/14/2015 for $18,000.

7. The Nelsons have a Long-term loss carryover of $14,000 from 2021.

8. Interest income earned from their various accounts is a total of $1,400. None of these amounts are related to municipal bonds.

V. On April 13 of 2022, the couple paid their $1,500 in state taxes due with their 2021 state tax return. They paid state income tax for 2022of $4,200. The couple's estimated state and local sales taxes for 2022will bea total of $2,800.The property taxes paid on their principal residence for 2022 is $7,600, excluding any amounts allotted to the artist studio.

VI. On October 1st they donated a parcel with a separate small building to the Girl Scouts of America for use as an art studio. They had purchased the acres in 2002 and recently divided a portion for sale (see 4e above). Thisportion has a basis of $41,500. A professional appraiser determined the fair market value of the property was $92,000 on September 24th of 2022.

VII. This year the Nelsons had several medical expenses not reimbursed by insurance these are as follows:

1. Tony & Jeannie both received corrective eye surgery, at a total cost of $6,000

2. $3,200 for braces for the 12-year-old

3. $ 2,600 in co-payments for covered medical procedures.

4. $700 in payments for over-the-counter medications.

5. $2,500 at the urgent care clinic for Jeannie's brother Sam who hurt his back helping her set up the art exhibits in May. He is not their dependent.

6. They pay $8,800 in health insurance premiums to cover the family.

VIII. The Nelson's spent $ 16,200 in home mortgage interest on their original acquisition cost of $800,000 from 2014. They do not have any additional mortgage debt.

IX. The Nelson's spent $45,000 for Tabitha's tuition at SCAD, $3,200 books and supplies and $10,000 for room and board.

X. The Nelsons paid quarterly estimated tax payments of $21,000 per quarter, based on their 2021 liability which was a total of $84,000.Based on their 2021 income of $280,000 the Nelsons did not receive any of the stimulus checks.

Using the above information answer the following questions using the excel spreadsheet attached,be sure to show your work:

I. Compute the net taxable income from Nelson Engineering.

II. Compute the net taxable income related to Jeannie's Abstracts.

III. Compute the gains/(losses) related to the Nelson family's sale of assets and the appropriate classifications

IV. Compute the itemized deductions of the Nelson family.

V. Review and compute the amount deductible as QBI.

VI. Compute the Adjusted Gross Income of the Nelsons.

VII. Compute the taxable income for the Nelsons.

VIII. Based on the information provided determine if the Nelsons qualify for any tax credits and if so, compute the credit(s).

IX. Compute the total tax liability for 2022considering the character of the taxable income computed in part G above.

Understanding the spreadsheet.

The spreadsheet contains several sheets where information needs to be entered. Many of the items on the first sheet, titled "Summary" are input on other sheets within the spreadsheet and carryover to the summary sheet.

Within the spreadsheet items that require your attention and input are highlighted in a blue background.

Lines where the amount is computed in another area of the spreadsheet are indicated in orange and double underlined. Thus, you should not need to input anything in these cells.

Computed cells are in grey. These cells also do not require input.