Question

Alex is a single man who works for Dogs-R-Us, an animal breeding and training company specializing in finding the perfect home for each pet. Alex has a daughter, Abigail, who is 7 years old. The following financial information for 2019 is provided for you below. Alex is looking to supplement his income by starting a side business of selling products for pets:

Alex's Wages for Dogs-R-us are: 68,600

-Federal taxes withheld: $4,218
-Social Security taxes withheld: $4,714
-State income taxes withheld: $2,354
-Alex paid $2,200 in interest on his student loans in 2019
-Alex’s employer provided healthcare coverage for him and his daughter. The healthcare coverage premiums cost Alex $1,000 over the course of the year, while the employer incurred an additional $6,875 for the healthcare coverage premium for Alex and his daughter Abigail. Alex’s healthcare coverage premiums were taken out of his check on a pre-tax basis.
-Alex incurred an additional $625 in premiums for dental and vision plans. These amounts were also taken out of Alex’s gross pay on a pre-tax basis.
-Alex had an additional $3,625 taken out of his check for his contributions to an employee sponsored 401K plan. The amount was taken out on a pre-tax basis. The employed matched the $3,625 contribution to Alex’s 401K plan.
-Alex receives $2,000 in qualified dividend from Apple Co.
-Alex paid $2,600 in dependent care expenses for school and after school care for his daughter Abigail. These payments were made to the local elementary school.
-Alex paid $4,200 in mortgage interest for 2019.
-Alex also incurred an additional $1,200 of out of pocket dental expenses this year, which was his only medical expense.

2. Proposed Business: Alex has crunched a few numbers and the following is expected for his pet product company:

1. Gross receipts of $28,500 in the first year.

2. Cost of Goods Sold: $10,850

3. Home Office Expense: $800. Alex plans to devote a back room in his home to storing

   products.

4. Laptop Purchased 2 years ago for $1,800. Alex intends to convert this laptop to

   business use to keep track of accounting, handle internet orders, etc. The laptop is

   currently valued at $663.

5. Tablet Purchased for Christmas: $375. Alex lets Abigail use it for homework and

   learning, but assures you that he only uses it for the business, to keep track of

   customer orders on Facebook.

6. Pet care equipment currently valued at: $8,500. While Alex does use some of the

   product for his own pets, he believes that 80 percent of the time, the equipment will be used for clients’ pets. The equipment was purchased last year for $7,250, but not used.

1. Complete a tax return for Alex without his proposed business.
2. Complete a tax return for Alex with his proposed business.

Answer 1