Mike Webb, married to Nancy Webb, is employed by a large pharmaceutical company and earns a salary. In addition, Mike is an entrepreneur and has two small businesses on the side, both of which operate as sole proprietorship. One is a profitable consulting business where Mike provides Financial and retirement assistance to pharmacists. . The other involves the manufacture of Christmas novelties in China, selling the products in gift shops in the U.S. This business is struggling. However, Mike feels the Christmas novelty business has great potential. In 2014, Mike reports the following:
Salary $150,000
Consulting practice: Revenues $65,000
Ordinary expenses $ 12,000 53,000
Sole proprietorship: Revenues $22,000
Ordinary Expenses $40,000 (18,000)
Interest (none tax-exempt) 3,000
Dividends, qualified 9,000
LTCG $24,000
STCL $(4,000) 20,000
Itemized deductions:
State and local taxes $ 14,000
Real estate tax 5,000
Mortgage interest on personal residence 10,000
Charitable contributions 8,000 37,000
Child care expenses:
And pay child care expenses of $4,000 per year for each Child. Nancy is not employed, but is full- time Student (all of 2014) at state university, majoring in Accounting.
Federal income tax withheld from salary $ 21,000
Estimated taxes paid from 2014 14,000
For 2013, Mike and Nancy's AGI was $175,000 and their actual federal income tax liability was $29,000.