Tony and Jeannie Nelson are married and file a joint return. They have four children whose ages are: 12,15,19 & 23. The three youngest live at home with their parents and qualify as their dependents. The oldest Roger got married on 5/5 2018 and lives with his wife, Jane. The 19-year old Tabitha is studying Fine Arts at Savannah College of Art & Design. During the summer she helps her mother put together the art exhibits. They provide you with the following information regarding their 2019 upcoming tax return:
1. Tony Nelson is an aerospace engineer he runs an engineering firm, Nelson Engineering, as a sole-proprietorship and has very lucrative contracts with numerous aerospace companies. Tony rents an office downtown where he meets with clients and conducts business. Tony estimates the following items of income and expenses from his engineering firm:
- Revenue $702,000
- Wages expense $192,000
- Rent Expense $ 32,000
- Depreciation $ 2,400
- Other Expenses $ 12,000
2. 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 $10,000 in salary from Cocoa Beach, School of the Arts. She is not covered under their insurance plan as she only works 15 hours a week. She also volunteers with the Girl Scouts of America and helps encourage the arts.
3. Jeannie is known for beautiful Arabian influenced abstracts. On May and August of this past year she had an exhibition and sold several paintings at each. She estimates that the cost of each painting in canvas and supplies is about $350. The sales are as follows:
May – 15 paintings $ 17,800
August – 12 paintings $ 12,000
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:
- Depreciation $3,500
- Taxes $1,900
- Utilities $2,400
4. The Nelsons sold the following assets during this year:
1.) 4/4/2019 sold for $18,000 stock in York Co. that was purchased for $10,500, on 2/14/2009, The shares of York Co are qualified small business stock under §1202.
2.) 7/1/2019 200 shares of New Co. for $21,000 total that were purchased on 8/7/2017 for $15,500.
3.) 7/15/2019 150 shares of City Co for $12,000 total that were purchased for $13,250 on 1/18/2019
4.) 8/5/2019 sold for $27,000 antique coins that Jeannie inherited from her great-aunt on January 16, 2019 when its FMV was $25,500.
5.) 10/1/2019, they sold a portion of a parcel of land with a small building for $45,000 that had a basis of $12,000 and was purchased in 2002. $30,000 of the gain is unrecaptured §1250 property.
6.) 10/15/2019 sold stock in Space Explorers Inc. for $32,000 that they had purchased on 8/14/2015 for $28,000.
7.) The Nelsons have a Long-term loss carryover of $18,000 from 2018.
5. On April 13, the couple paid their $2,200 in state taxes with their 2018 state tax return. During 2019, they estimate they will pay $3,200 in state taxes for 2019. The couple’s state and local sales taxes for 2019 will be $2,900. The property taxes paid on their principal residence for 2019 is $7,300, excluding any amounts allotted to the artist studio.
6. On October 1st they donated the portion of the parcel with a small building to the Girl Scouts of America for use as an art studio. They had purchased the building in 2002 and recently divided a portion for sale (see 4d above). The other portion has a basis of $61,500. A professional appraiser determined the fair market value of the property was $97,000 on September 24th of 2019.
7. Tony & Jeannie both received corrective eye surgery, at a total cost of $6,200 (not reimbursed by insurance.) They also spent $2,300 for braces for the 15-year-old (not reimbursed by insurance). In addition, they paid $6,500 in health insurance premiums to cover the family.
8. The Nelson’s spent $ 12,100 in home mortgage interest on their original acquisition cost of $550,000 from 2004. They do not have any additional mortgage debt.
9. The Nelsons paid quarterly estimated tax payments of $20,000 per quarter, based on their 2018 liability of $72,000.
Using the above information answer the following questions using the excel spreadsheet attached, be sure to show your work:
- (10 points) Compute the net taxable income from Nelson Engineering.
- (10 points) Compute the net taxable income related to Jeannie’s Abstracts.
- (20 points) Compute the gains/(losses) related to the Nelson family’s sale of assets and the appropriate classifications
- (10 points) Compute the itemized deductions of the Nelson family.
- (10 points) Review and compute the amount deductible as QBI.
- (10 points) Compute the Adjusted Gross Income of the Nelsons.
- (5 points) Compute the taxable income for the Nelsons.
- (5 points) Based on the information provided determine if the Nelsons qualify for any tax credits and if so, compute the credit(s).
- (10 points) Compute the total tax liability for 2019 taking into account 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 into these cells.
Computed cells are in grey. These cells also do not require input.
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