Question

You are an accountant and just opened up your practice at an exclusive Beverly Hills plaza. George Clooney and his wife, Amal Clooney come to you for tax advice. George is a self-employed consultant. In 2017, George’s business generated revenue of $265,000 and incurred expenses of $28,000 for rent and utilities for an office. George also spent $18,000 purchasing depreciable equipment used in the business and paid a part time secretary $22,000 for administrative work performed during the year. He hired Mary, an assistant to help him in his consulting practice and paid her $50,000. George paid $6,000 for his own health insurance and $10,000 for term life insurance. He did not contribute to any retirement plans. Amal also works as a consultant, but is employed by a large firm. Her salary in 2017 was $185,000. Amal’s employer paid $30,000 of premiums for her health insurance and provided $50,000 of group term life insurance to each of its employees. Amal is not covered by a qualified retirement plan at work, but she contributed $15,000 to a traditional IRA. Amal routinely travels for her job and was reimbursed by her employer for all travel expenses. In addition, Amal spent $1,000 on other employee business expenses that were not reimbursed by her employer. What are the tax consequences of these items? Can George and Amal deduct the expenses they incurred? Are there other tax planning opportunities the couple may be missing or tax issues of which they should be aware? Are they both self-employed or are they employees?

Answer 1

Computation of Total Income($) for George:

Revenue = 2,65,000

Expenses = 68,000(Office Rent,Utilities, Depreciation,Secretary Salary)

Profit = 1,97,000

Total Business Income = 1,97,000

Deductions u/s 80c = 16,000

Total Income = 1,81,000

Tax Amount = Nil (Since Below Taxable limit of 2,50,000)

Calculation of Total Income for Amal:

Income from Salary =1,85,000

Deduction for IRA Contribution = 15000

Other Business Expenses = 1000

Total Income = 1,69,000

Tax Amount = Nil (Since Below Taxable limit of 2,50,000)

Note :1. Health Insurance,Term Life Insurance Premium Paid by Amul's Employer will be added to her Income first and there after deuction can be claimed

2. Travel Expenses incurred and reimbursed by Amul's Employer so no effect for tax computation

3. Other Expenses incurred and not reimbursed by Amul's Employer so Amul can take it as deduction if reiumbursed Such Amount will be first added to her Income and there after Deduction will be allowed

4. George And Amul both are Self Employed