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You will have to determine taxable income for Khang and Lam for both 2014 and 2015. They
are calendar year, cash basis, tax payers.
Ignore phase out for Itemized Deductions and phase out for exemptions
Khang (age 46) and Lam (age 44) are married. Khang has a son, Jeff, from a previous marriage.
Jeff is the dependent of Hui, Khang's first wife.
TAX FACTS FOR 2014
2014 was a really bad year for them.
(2012 and 2013 weren't very good for them either because they had
BIG §1244 losses) They ended up in the 10% tax bracket those years.
Last year Lam rented a UPS store. Sadly, the business went nowhere because
there was construction in front of the store all year long.
Lam had taken most of the year off from golf, and Khang had just started his job, after taking
off most of the year to help at the dry cleaning business.
In 2014 they had the following tax facts:
22,660 Lam's Revenue from giving golf lessons
Motivational speech revenue was nothing for the year
33,990 Revenue from UPS store
5,550 Monthly UPS store Rental Expense (paid to their landlord)
36,256 Employee salary (Reasonable amount they paid to their employee)
2,266 Interest revenue from Series EE Bonds (They elected to take it all in income in 2014
the year they matured)
4,163 Casualty loss (after limitations) from theft of their kayaks
Charitable Contribution to their church
5665 FMV of car they gave to church (They had owned it for 7 years) 22660
Amount they paid for car.
8,830 Amount they sold 1000 shares of ABC Stock 1000 for on March 3, 2014 (publically traded)
25,660 Amount they paid for 2000 shares ABC stock on June 1, 2012
7,581 Amount they paid for 700 shares of ABC stock on February 13, 2014
27,660 Amount they received on sale of XYZ stock (publically traded)
21,660 Amount they paid for XYZ stock 2 years ago
340 Tax Return preparation (personal portion)
680 Tax Return Preparation (business portion)
PROBLEM 1 - TAX FACTS FOR 2015
Lam was formerly a professional golfer. She currently gives golf lessons and
also gives motivational speeches.
103,000 Lam's Revenue from giving golf lessons
33,000 Lam's Revenue from giving motivational speeches
1,650 Lam's Revenue from selling her personalized golf shirts
10,300 Air Travel/hotel expenses this year - inside and outside the country…all related to giving
lessons or speeches
1,133 Meal expenses while traveling - on the trips to give lessons or speeches
412 LPGA dues - required to maintain professional golf status
2,150 Golf course fees for her to play twice a week where ever she is
215 Amount
she paid to local golf course manager to let her pay only 50% per round of golf instead of the
regular fee. Local golf course was unaware of the arrangement.
108 Annual amount she has to pay to get her license to teach as a pro in Vietnam several times
a year.
(this is legally required amount)
54 Annual she has to pay to the person who issues the licenses, but who charges everyone
a little bit extra because he can. (Person in Vietnam)
990 Amount Lam pays for golf shirts she sells
3,300 Lam was surprised to be nominated and to win the "LPGA Volunteer of the Year" award
from the LPGA because of her great service to the golf community. She promptly
endorsed the check and donated it to the American Junior Golf Association which is a
501©(3) charitable organization. https://www.ajga.org/Sponsorship/becoming.asp
Khang and Lam bought a house on January 1 this year. They have been remodeling it ever since.
Khang's mother, Tuyet, moved in with them on January 1. She is NOT their dependent, because she
earns about 20,000 per year in interest from Federal Government bonds.
1,545,000 Price of their home
309,000 Down payment they paid…the took out a mortgage on the rest of it.
This year their expenses on their home were:
49,440 Interest
5,144 Principal
614 Mortgage Insurance
6,438 Property taxes
694 Home Insurance
61,728 Cost to remodel their home the way Tuyet's doctor said she needed because of her
arthritis. (They remodeled this year)
555 Cost of appraisal for home after remodel (for tax purposes)
12,346 Increase in value of their home because of remodel
Khang is employed as the CFO of a start up dog's clothing company. He doesn't make much yet,
but, thinks that things will grow fast - their theme is raingear for dogs of the northwest. The
company is called "Muttgear".
154,500 Khang's salary - he started on January 1 this year.
All of the employees get term life insurance at Muttgear in the amount of 25% of
their salary.
(The death benefit is 25% of their salary)
139 The annual cost of the premium Muttgear pays for Khang's policy
Muttgear allows all employees to purchase raingear for their dogs.
Khang buys a lot of it for his dog, Zack, and also to give as Christmas gifts to his relatives
for their dogs.
1,545 Retail price of the rain gear he buys
1,236 Cost of the raincoats for the company
1,082 Amount Khang pays for the raingear
230 Cost to Muttgear when it pays Khang's CPA dues every year
2,163 Cost to Muttgear when it pays for Khang's Professional Continuing Professional Education
each year
2,760 Annual Cost Muttgear pays for food for Khang and his two accountants when they are
preparing the end of the month reports. (Each of them eats about a third of
it.) This is a burger and a salad from the local sports grill delivered to the
the office. They usually end up working two nights a month until 10 pm.
Muttgear also has a dog grooming business, in addition to the raingear business.
Khang takes Zack in for grooming every month.
834 Annual Retail Cost if Khang paid full amount
Employees pay nothing for this service. They just call for an appointment during
regular business hours of the dog grooming facility.
They have quite a few investments
They have some investments:
15,660 Price they received on sale of ALL the remaining ABC stock (see facts from 2014) They
sold it on December 1, 2015.
20,576 Cash Dividend Income from some utility stocks they own
15,432 Amount received on sale of publically traded stock XE they sold on April 15, 2015
4,630 Amount paid for the XE stock they bought June 12, 2014
1,543 Management fee on portfolio they pay to broker
4,115 Interest expense they paid to broker
2,220 Cost of tax return preparation fee for 2015 (they did it themselves in 2014)
50% of cost is for business portion of return
20% is for investment portion of return
30% is for personal portion of return