Financial Planning for a Couple

Legally, Virginia Johnson's cash income from her child care activities must be reported as income on the couple's federal income tax return. Thus, a financial advisor cannot legally offer any contrary advice. Howard Johnson's gambling loss is deductible from gross income only to the extent that the loss offsets any income gain from gambling activity. As there is no indicated income gain from gambling activities, the gambling loss is simply money down the drain for the Johnsons. A financial advisor may advise Howard Johnson to curtail his gambling activities, as the 1992 loss was the equivalent of 1.75 percent of his employment income and .875 percent of the couple's joint employment income. It could be further pointed out to Howard Johnson that investment of the $525 for one year would have earned a minimum of $21 interest, and that, had the money been invested, the Johnson's total assets would be $1,071 more than they are now. All of this information will be to no avail, however, if Howard Johnson likes to gamble and thinks that $525, or even $1,071, is a reasonable price to pay for such entertainment. After presenting this information to Howard Johnson, a financial advisor should drop the subject, if he or she desires to retain Howard Johnson as a client.

In calculating their federal income tax, the Johnsons will be permitted to itemize deductions as their allowable deductions exceed the stand