Reference no: EM132333967

Question No. 1

Sub: Individual tax research and planning.

Please respond the below statement 200 words and reference:

With activity A, this is considered business income and so Rodney will be filling out Schedule C or Schedule C-EZ if he does not really track expenses for this business. Rodney will also be filling out Schedule SE then the data will be put into Schedule 1, on line 12 to later go onto line one of form 1040 itself. With activity B, this will also be included as business income for Rodney on another Schedule C of Schedule C-EZ. This amount will also be plugged into line 12 of Schedule 1. This amount should be able to offset some of the income from activity A. For activity C, this is considered rental income so will be included in Schedule E with the amount of profit listed in line 17 of Schedule 1 and later onto line 1 of form 1040 itself. This amount does not have to pass through Schedule SE because rental income is considered to be passive income. Activity D is also a sole proprietorship as well so it will get its own Schedule C or Schedule C-EZ, flow through to Schedule SE, then be added to the total on line 12 of Schedule 1. Basically all one needs to do is follow Schedule 1, add all the business gains and losses along with the rental income to come up with the total on line 22 to put in line 6 of form 1040 and then put in the amount from Schedule SE onto line 27 to get the adjusted gross income on line 7 of form 1040 (Ayers, et al., 2019).

As for my advice for Rodney, I would ask him to make sure to keep accurate records for what he purchases for his business and the travelling he has to do for each one. I would make sure that he's depreciating property where needed to get adequate tax deductions. From this example, it sounds as if he does not keep very good records and he could get some deductions on expenses he might have paid out of pocket for.

He might also want to get health insurance as that is a for adjusted gross income deduction for him. This could lessen them amount of taxes he pays in the end. This is listed in line 29 of Schedule 1 as a deduction for him. While on the subject of health he could also set up a health savings account deduction from line 25 of Schedule 1 (Schedule 1 (Form 1040), 2018).

He could also contribute to an IRA to lower his tax burden; this is listed in line 32 of Schedule 1 and will be useful to him in the long run. If he was paying on student loans, then he could also deduct the interest he was paying on them on line 33 of Schedule 1 (Schedule 1 (Form 1040), 2018).

Question No. 2

Sub: Individual tax research and planning.

Please respond the below statement 200 words and reference:

So, Rodney has a lot going on working on four different businesses in four different cities. In our example, there's no mention of partners or any special ownership situations so we can simplify Rodney's tax returns by filling out Schedule C (Form 1040) for each of his businesses (IRS, 2019). Unfortunately, there's also no mention of expenses for any of Rodney's businesses so if he hasn't kept good records, we will have to assist him in doing some estimating. The Cohan Rule allows taxpayers that don't keep good business-related records to make some good faith estimates and include those in their filing (Spilker, 2019). This method isn't without risks however, and an individual attempting to estimate all of their business expenses may find that they aren't fully accepted by the IRS, or they may be hit with penalties if it is deemed that they didn't use good faith estimates.

For Activity A, the sports bar, Rodney would include his gross sales and subtract his cost of goods sold (food, alcohol, merchandise, etc.) to find his gross income from the business. He would then work his way through the various expense items, as a sports bar many of the categories would apply but at a minimum would likely include advertising, insurance, repairs and maintenance, supplies, taxes and licenses, and wages. His net profit would be entered on Form 1040, line 12 and Schedule SE, line2.

For Activity B, the clothing store, his loss would also be entered on Schedule 1, line 12 and Schedule SE, line 2, and he may need to attach Form 6198 depending on whether all or just some of his investment was at risk.

For Activity C, the office building, Rodney has some options depending on how we characterize his involvement with the property. Rodney could use Schedule E to report the rental income if he doesn't provide substantial services for his tenant's convenience (IRS 2, 2019). Since Rodney has an office in the building and acts as the business manager though, I don't think this is correct. In this case he should stick with Schedule C.

For Activity D, the golf course, we're back to Schedule C with profit or loss entered on Schedule 1, line 12 and Schedule SE, line 2.

My advice to Rodney would be to go over his overall business strategy with him and try to understand what his goals were. Just based on our information in the example, I have some questions about what records he keeps and whether he keeps them separate and distinct from each other. With businesses in four different towns in two different states, Rodney probably does a fair amount of traveling between to conduct business. If part of his travel is also personal, he would need to have very meticulous records in order to deduct mileage, airfare, and potentially lodging if he doesn't have residences in all these places.

Personally, I would also want to know about Rodney's reason to have such diverse businesses in multiple distant locations. The bulk of his income comes from the two businesses in Georgia. It may be in Rodney's best interest to evaluate whether the clothing store and sports bar are worth retaining. If Activity B only generates losses, why go through the hassle of multiple Schedule C's and traveling throughout the year to sustain it. For Activity A, this may be something Rodney feels excited about but maybe he can sell it at a profit and incorporate a restaurant in his office building or expand the offerings on the golf course. A sports bar wouldn't fit into those scenario's, but it would allow Rodney to maintain some connection to the restaurant and service industry while further reducing his travel and book keeping requirements.

Sub: Individual tax research and planning.

Question No. 3-150 words with reference.

Thomas and Eddie charge the business for gas credit card for the Company Cars. The Company cars are two SUV, one for each Thomas and Eddie. Can I include the gas and oil costs of the two SUV on the schedule C. They have to make trips all during the year to visit other competing Sports Bars all over the country, like San Diego, Austin, Chicago. They get ideas on these visits. What do you think?