Tony & Jeannie Nelson

Please complete in the excel file uploaded slide number 4 "Tony & Jeannie Nelson Sale of Assets".

– Compute the gains/(losses) related to the Nelson family’s sale of assets and the appropriate classifications

Summary

Tony & Jeannie Nelson
Summary of Tax Return
2022
Description	Amount	Subtotal	Totals	Explanation/Computations as needed
Salary & Wage Income
Net Income from Nelson Engineering	– 0
Net Income from Jeannie Art	– 0
Interest Income
S/T Capital Gains	– 0
Other Ordinary Income
Ordinary Income	– 0
L/T Capital Gains 28%	– 0
L/T Capital Gains 25%	– 0
L/T Capital Gains 0/15/20	– 0
Other Income, if any
Total Gross Income		– 0
Adjustments (deductions FOR AGI):
Total Adjustments FOR AGI		– 0
Adjusted Gross Income		– 0
Itemized or Standard Deduction	– 0
Qualified Business Deduction	– 0
Total Deductions FROM AGI		– 0
Taxable Income			– 0
Ordinary Taxable Income		– 0
L/T Capital Gains 28%		– 0
L/T Capital Gains 25%		– 0
L/T Capital Gains 0/15/20		– 0
Taxable Income			– 0
Tax on Ordinary Income		– 0
Tax on LTCG 28%		–
Tax on LTCG 25%		– 0
Tax on LTCG 0/15/20		– 0
Tax on Taxable Income			– 0
Other Taxes:
Net Investment Income Tax		– 0
Self-Employment Tax		– 0
Additional Medicare Tax		– 0
Total Other Taxes			– 0
Total Tax			– 0
Credits:
Child Tax Credit	– 0
American Opportunity Tax Credit	– 0
Total Credits		– 0
Prepayments
Total Credits & Prepayments			– 0
Amount Due (Refund)			– 0

Nelson Engineering

Tony & Jeannie Nelson
Nelson Engineering
2022
Item Description	Amount	Explanation/Computations as needed
Revenue
Cost of Goods Sold
Gross Profit	– 0
Business Expenses:
Wages
Rent Expense
Taxes
Utilities
Depreciation
Interest
Travel
Entertainment
Meals
Other Expenses
Total Expenses	– 0
Net Business Taxable Income (Loss)	– 0
Self Employment Tax Deduction

Jeannie Abstracts

Tony & Jeannie Nelson
Jeannie Abstracts
2022
Item Description	Amount	Explanation/Computations as needed
Revenue
Cost of Goods Sold
Gross Profit	– 0
Business Expenses:
Wages
Taxes
Utilities
Depreciation
Other Expenses
Total Expenses	– 0
Net Business Taxable Income (Loss)	– 0
Self Employment Tax Deduction

Sale of Assets

Tony & Jeannie Nelson
Sale of Assets
2022
	Items	Proceeds	Cost	Net Gain (Loss)	Short Term Capital Gain/(Loss)	Long Term Capital Gain/(Loss)
						28%	25%	0/15/20	Explanation/Computations as needed
a				– 0
b				– 0
c				– 0
d				– 0
e				– 0
f				– 0
g	Carryover
Total Gain / (Losses) Steps 1 & 2				– 0	– 0	– 0	– 0	– 0
Netting Steps and Adjustments:
NET GAIN (LOSSES)				– 0	– 0	– 0	– 0	– 0	NET GAIN (LOSSES) to Summary sheet

Itemized Deductions

Tony & Jeannie Nelson
Itemized Deductions
2022
Item Description	Amount	Subtotal	Total	Explanation/Computations as needed
Medical Deduction
Total Expenses		– 0
Medical Expense Deductible
Taxes Paid
Total Expenses		– 0
Tax Expense Deductible
Interest Paid
Total Expenses		– 0
Interest Expense Deductible
Charitable Contributions
Total Expenses		– 0
Charitable Contribution Deductible
Other Itemized Deductions
Total Expenses		– 0
Other Deductible
Total Itemized Deductions			– 0
Standard Deduction
Amount Deductible

QBI

Tony & Jeannie Nelson
Qualified Business Deduction Calculation
2022
				Explanation/Computations as needed
Qualified business income (QBI) from Nelson Engineering
W-2 Wages for this activity
Qualified Property (investment) for this activity
Qualified business income (QBI) from Jeannie Abstract
W-2 Wages for this activity
Qualified Property (investment) for this activity
Taxable Income before QBI Deduction
Wage based Limitation Taxable income before QBI and pref rates threshold
Qualified Business Income Deduction:
Lesser of:	QBI Calculation
a)	QBI from Nelson Engineering	– 0	– 0
	QBI from Jeannie Abstract	– 0	– 0
	Rate	20%
	Total QBI		– 0
or	Taxable Income Limitation
b)	Taxable Income before QBI Deduction	– 0
	Capital gains
	Excess of income over capital gains	– 0
	Rate	20%
			– 0
Wage Based Limitation on QBI:
Applies	Yes or No
If Yes then compute below:
Greater of:
	Nelson
a)	50% of wages	– 0
b)	25% of wages + 2.5% of qualified property	– 0
Greater of:
	Jeannie
a)	50% of wages	– 0
b)	25% of wages + 2.5% of qualified property	– 0
Amount of QBI Deduction

Tax Calculations

Tony & Jeannie Nelson
Tax Calculations
2022
	Income	TAX	Explanation/Computations as needed
Tax on Ordinary Income	$ – 0
Bracket
Excess	$ – 0
Marginal Rate %
Tax on Excess		$ – 0
Total Tax on Ordinary Income		– 0
L/T Capital Gain 28% Max	– 0
Capital Gains Rate	28%
Capital Gains Tax		–
L/T Capital Gain 25% Max	– 0
Capital Gains Rate
Capital Gains Tax		– 0
L/T Capital Gain 0/15/20%	0
Capital Gains Rate
Capital Gains Tax		– 0
Net Investment Income
NIIT Rate	3.8%
Net Investment Income Tax		– 0
Self Employment Tax
Total Income Nelson Eng	– 0
Taxable Computation.	92.35%
Self Employment Taxable	– 0
Social Security Taxable
Rate	12.4%
Social Security Tax	– 0
Medicare Taxable
Rate	2.9%
Medicare Tax	– 0
Self Employment Tony		– 0
Total Income Jeannie Abstract	– 0
Taxable Computation.	92.35%
Self Employment Taxable	– 0
Social Security Taxable
Rate	12.4%
Social Security Tax	– 0
Medicare Taxable
Rate	2.9%
Medicare Tax	– 0
Self Employment Jeannie		– 0
Total Self Employment Tax		– 0
Extra Medicare
Tony SE Taxable	– 0
Jeannie SE Taxable	– 0
Jeannie Salary
Total S E Taxable	– 0
Extra Medicare MFJ Floor
Amount Subject to extra	– 0
Extra Rate	0.9%
Extra Medicare Tax		– 0

Tax Credits

Tony & Jeannie Nelson
Tax Credits
2022
Child & Dependent Tax Credit		Explanation/Computations as needed
# of children eligible for credit
credit per child amount
# of other dependents
Per other dependent credit amount
Total Child Tax Credit before phase-out	– 0
Adjusted Gross Income (AGI)	– 0
Phase-out threshhold
AGI In Excess of threshold	– 0
Credit Phase-out Increment
Amount of Credit Phase-out
Net Child Tax Credit	– 0
Total Net Child Tax Credit on Return
American Opportunity Tax Credit
Amount of eligible expenses
Amount of credit before phase-out
Adjusted Gross Income (AGI)	– 0
Phase-out threshhold
AGI In Excess of threshold	– 0
Phase-out range for MFJ
Phase-out %
Amount of Credit Phase-out
Net American Opportunity Tax Credit	– 0

Exam 2 – 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 2022 and 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 2022 tax return:

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

a) NE has very lucrative contracts with numerous aerospace companies and during 2022 it will earn $647,000.

b) NE rents an office downtown where they meet with clients and conducts business. The rent includes all utilities. NE will 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.

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

d) 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.

e) Tony took different business clients to see several home Miami Heat games during January and February of 2022 followed 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.

f) 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 were airplane ticket $480 and hotel lodgings cost $160/night for two nights.

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

h) 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.

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 $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.

3) 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.

a) The sales are as follows:

i) May – 19 paintings for a total of $ 24,000

ii) August – 12 paintings for a total of $ 18,000

b) 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:

i) Depreciation $3,600

ii) Taxes $1,900

iii) Utilities $3,400

4) The Nelsons who utilize the specific identification method for valuing their investments to minimize gains, had the following assets/investments activities occur during this year:

a) 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.

b) 7/1/2022 sold 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.

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

d) 8/5/2022 sold 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.

e) 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.

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

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

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

5) 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 2022 of $4,200. The couple’s estimated state and local sales taxes for 2022 will be a 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.

6) 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). This portion 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.

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

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

b) $ 3,200 for braces for the 12-year-old

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

d) $ 700 in payments for over-the-counter medications.

e) $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.

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

8) 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.

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

10) 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:

A. ( 10 points) Compute the net taxable income from Nelson Engineering.

B. ( 10 points) Compute the net taxable income related to Jeannie’s Abstracts.

C. ( 20 points) Compute the gains/(losses) related to the Nelson family’s sale of assets and the appropriate classifications

D. ( 10 points) Compute the itemized deductions of the Nelson family.

E. ( 10 points) Review and compute the amount deductible as QBI.

F. ( 10 points) Compute the Adjusted Gross Income of the Nelsons.

G. ( 10 points) Compute the taxable income for the Nelsons.

H. ( 10 points) Based on the information provided determine if the Nelsons qualify for any tax credits and if so, compute the credit(s).

I. ( 10 points) Compute the total tax liability for 2022 considering 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.