Tax Return Preparation and Planning for Lance Hallam: 2020

Overview of Lance Hallam's Situation

Lance Hallam has come to you for assistance in preparing his 2020 Tax Returns.  He has also requested that once you prepare his tax return that you assist him in tax planning using all the information you learned in your UCLA Tax class. Please use the following information to prepare his tax return and draft a  3 – 4 page letter to him outlining your observations with respect to his tax return and any planning or recommendations that you have for him for 2021 or future years. Please use double spacing for your letter. 
While I encourage you to work with your classmates in navigating the tax software for a corroborative learning experience, the tax return for Lance will be submitted by groups.  However, in drafting the letter to Lance, this should be done 100% independently, similar to taking a test and therefore there should be no discussions or comparison of information contained in the letters you draft.    
 
Information on Lances: 
Lance in 46 years old and has been working at Door Dash since inception as an Operations Manager.  Recently he has been considering starting his own company in a similar industry.  He has a small amount of income from this business in 2020 as he wanted to test the market before leaving Door Dash and pursuing this business fulltime.Currently he works at Door Dash on Monday through Friday and on Weekends and evenings he works from home as a sole proprietor in the business he has started. He has two employees who work for him on weekends/evenings in his start up business delivering food. 

Lance is engaged and plans to get married to Chloe in December 2021 or January 2022.  Chloe is Lance’s boss at Door Dash and earn’s 3xs Lance’s wages.  Chloe loaned Lance $50,000 on 1/1/2020 to buy equipment for the business he started.  The Federal rate was 5% but she elected to not charge him interest on the loan. Lance has a six year old daughter Ashley from a prior marriage.  He has full custody of Ashley and provides all of her support. Lance has a large portfolio of investment assets from gifts he received from his parents.  He also took out a loan to further invest in his stock portfolio. His parents gave him a gift of $100,000 in 2020.  Lance earns interest, dividends and capital gains each year.  He is not sure if he is investing in a tax efficient manner but seems to have a good eye for picking stocks and has been successful in growing his investment portfolio. 

Lance donated securities to charity.  Please assume the cost of each donation was 40% of it’s FMV and that all stocks were purchased on He also owns rental properties and a personal residence.  He is thinking of selling both the rental property and his personal residence after he gets married and buying a house with Chloe that they can both live in. Lance has a loan on his personal residence but did not pay any points when he took out the loan.  He has no loans on the rental properties.Lance went to UCLA as an undergraduate and is a Bruin to his core.  He paid student loan interest in 2020 of $8,900.  He has always given donations to UCLA each year but would like to increase his support in the future. 

Lance had a surgery in 2020 related to an on the job injury.  He received Work Comp Income in 2020 of $22,000.  His out of pocket medical expenses were $14,000. Lance made estimated tax payments throughout the 2020 year as required to avoid penalties.