Employment Income Review Problem
It is September 1st and your third-year university roommate Goerge understands you recently completed a tax course and would like your help with his 2019 tax return.
During the 2019 school semesters he was employed by Locals’ Only Pub (“LOB”) where he earned a salary of $20,000. He also earned $3,000 in tips and won $4,000 in the staff’s weekly post Saturday closing poker game. LOB’s owner was concerned that Goerge may have been developing an addiction problem and paid $2,000 for him to participated in a counselling and well-being retreat. A couple months later and Goerge no longer appeared on the schedule and a $2,500 in wages was unpaid. Goerge hired a lawyer and paid $500 to collect the unpaid wages and $1,000 to defend against an assault charge that followed a poker game. Goerge misses working at LOB as he could also eat meals there for ½ price, basically the cost of the food, and he figures this saved him $750 per month. LOB, as part of its support a student program, also paid for one of his courses at a cost of $1,000.
During the summer, May 1st to August 31st, Goerge was employed by a Drop Cloth Paints Inc. (“DCPI”), a manufacturer of paints and specialty coatings. He was provided with a station wagon which he drove 12,000kms for work and 4,000kms for personal use. The new cost of the wagon was $38,000 but Goerge figured its market value would presently be about $18,000. He paid DCPI $100 per month to cover his use of the wagon.
He earned $14,000 in salary and $6,000 in commission. In the course of his employment he incurred the following expenses:
· Metal working course to meet clients $ 1,500
· 4×4 off-road club to meet clients $ 250
· Evenings out with prospective clients at trade shows $ 2,000
Goerge also purchased a $1,000 smart phone and a $60 per month plan, he did not exceed the plan limits and used the phone ~80% for work.
As part of its employees of the future program, DCPI issue 1,000 options to each student who held a summer job. In mid December, to fund his winter vacation, Goerge exercised all the options and sold the shares. He purchased the shares for $8, sold them for $10 and the shares had a fair market value of $7 when issued.
Calculate Goerge’s (focus on presentation):
· Net Income for Tax Purposes
· Taxable Income
· Total Credits
· Tax Payable
· Why you included or excluded items from your calculations
· Areas where you made assumptions
· What additional information may change your calculations