Question #2 (9 marks)

Using the information about Giada provided below, please calculate Giada's Employment Income for the tax year 2024 using the formula studied in class. For items not included, explain your reason for not including them.

Your mother told her friend Giada that you are taking a tax planning course. It is now December 31, 2024. Giada works for a privately owned corporation and has a generous salary and benefits. She works in sales and has a stressful job, but she loves it. Giada is not very good with her finances and has some questions about her employment income for 2024. She has asked you for help. Here is the information Giada has provided.

- Giada's salary for 2024 was $87,244.

- Her bonus for 2024 was $31,354 - one third was paid November 15th, 2024. The balance will be paid on January 15th, 2025.

- Giada travels quite a lot for work. Her employer provides a travel allowance of $2,000 per month. At the end of the year, she adds up her actual travel expenses and it comes out to $16,455.

- She was granted stock options for 100 shares in 2020. The exercise price was $25 and the market value of the company's shares was $24. She exercised the options in 2021 when the share price was $32. She sold the shares on October 4^th, 2024, when the share price was $39.

- She is a member of the company pension plan and makes contributions in 2024 of $5,232.66.

- Giada's employer pays $1,800 for her health club membership to ensure she gets some downtime outside of work hours.

- Giada's employer pays the premiums for group life insurance ($30 per month) and for health insurance ($42 per month)

Answer:-

Employment income for the tax year 2024,

1. Salary for 2024 was$87,244

2. Bonus

The portion of the bonus that was received in 2024 is included.Bonus received in 2024.

one-third of $31,354 = 31,354/3 =$10,451.33

3. Travel allowance

Giada receives a travel allowance from employers of $2,000 per month; this gives a total of $24,000 for the year. Her actual travel expenses for the year are $16,455, She received an excess amount of $7,545 which is taxable.

Total travel allowance received:

2,000 X 12 = 24,000

Actual travel expenses: $16,455

Excess travel allowance (taxable amount):

24,000 - 16,455 =7,545

4. Stock Options

Giada was granted stock options in 2020 and used them in 2021.

Exercise price per share: $25

Fair Market Value per share at exercise in 2021: $32

Number of shares exercised: 100

Taxable Benefit = ($32 - $25) x 100 = $7 x 100 =$700

Since she exercised the options in 2021, $700 was part of employment income at that time; this amount was taxed as employment benefits in 2021.

In 2024:-

Sale price per share in 2024: $39

Number of shares sold: 100

Capital Gain = ($39 - $32) x 100 = $7 x 100 =$700

Taxable Capital Gain = $700*50% =$350

In 2024, she sold the shares. The gain from the sale is capital gain, and only 50% of this capital gain would be included in taxable income. But it won't considered under employment income.

Hence, the stock option gain is excluded from employment income.

5. Pension plan contribution:

That pension contribution is registered to a company pension plan. Employee contributions to registered pension plans are not taxable as employment income, and they deduct directly from net income. So, we won't include $5,232.66 in employment income.

6. Health club memberships:

Giada's employer pays for her health club membership to ensure she has downtime outside of work. Since this benefit is for personal enjoyment and not a requirement for work, it is considered a taxable benefit.

Taxable health club membership:$1,800

7. Group Life Insurance

Giada's employer pays $30 per month for her group life insurance. This is considered a taxable benefit, as employer-paid premiums for group life insurance are considered taxable income

Monthly premiums: $30

Annual premium : $30 X 12 = 360

The taxable group life insurance benefit:$360

8. Health insurance premiums:

Giada's employer pays $42 per month for her health premiums. Employer paid health insurance premiums are a taxable benefit. This amount is considered employment income.

Monthly premium: $42

Annual Premium: $42 X 12 =$504

The Employment income for 2024 = $107,400.33