When golfer Phil Mickelson won the Aberdeen Asset Management Scottish Open, he c

Question

When golfer Phil Mickelson won the Aberdeen Asset Management Scottish Open, he continued his winning streak the following week by winning the British Open Golf Championship. His last round was one for the his- tory books. He birdied on four of the last six holes. Both tournaments played in Scotland, and for this fantastic feat, his gross prize money totaled £1,445,000 (just over $2 million U.S. dollars). At that time, the United Kingdom (UK) set a 45 percent tax rate in Scotland on income over £150,000 Mickelson also earned $57 million in endorsements during one year. He had to pay the 45 percent tax rate for his endorsements earned during the 14 days he spent in Scotland. Assume that his endorsements are paid ou at an even daily rate throughout the year. He paid his caddy 10 percent of hi gross tournament winnings in Scotland, and his expenses were £10,586 for an airline ticket, hotel rooms, ground transportation, and meals. Assume tha the conversion rate for British Pounds is 0.6264 for one U.S. dollar Do the Math 1. Use a calculator to figure the amount of UK taxes that Mickelson owed in British Pounds on all of his winnings and endorsement earrn ings in Scotland.

Explanation / Answer

Total gross earnings in Scotland including prize money and endorsement earnings (in British pounds) =1445000+57*10^6*0.6264*14/365

=2,814,499

Caddy payment and other expenses = 1445000*0.1 + 10586 = 155,086

Net taxable earnings in Scotland after subtracting Caddy payment and other expenses

=2814499 - 155086

=2,659,413

Amount of UK taxes = 2659413*45% = 1,196,736

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