Concepts in Federal Taxation 2019 (with Intuit ProConnect Tax Online 2017 and RIA Checkpoint 1 term (6 months) Printed Access Card)
Concepts in Federal Taxation 2019 (with Intuit ProConnect Tax Online 2017 and RIA Checkpoint 1 term (6 months) Printed Access Card)
26th Edition
ISBN: 9781337702621
Author: Kevin E. Murphy, Mark Higgins
Publisher: Cengage Learning
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Chapter 5, Problem 40P
To determine

Prepare a letter to Person R by explaining the proper tax treatment of the investigation expenses.

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Allison works full time as a dental hygienist. She devotes her spare time to designing and creating stained glass pieces. During the past year, she has sold 10 of her pieces at local craft fairs and was recently commissioned to create 3 stained glass windows for the home of a new customer. She has incurred a number of expenses for taking stained glass classes, purchasing materials and tools, and participating in craft fairs. Identify the tax issue or issues suggested by the following situations and state each issue in the form of a question.
Richere is a new client. She tells you that during the past year for fun she made quilts and sometimes sold them at local craft fairs. She said she earned about $1,750 doing this. Her tax preparer should:  (a) Report this income on Schedule C and assist Richere to reconstruct her expenses for any items related to the production of the quilts, booth costs, and travel to the craft fairs.  (b) Tell Richere that because she has no profit motive, the income is not taxable and the expenses are not deductible.  (c) Explain the hobby loss rules to Richere and explain that the income should be reported on Schedule 1, line 8 but as this is a hobby, any expenses she has are not deductible.  (d) Advise Richere that the income is reportable and that you will assist her to reconstruct her expenses which may be deducted on Schedule A, line 16.
In his email William outlined an idea to set up a restaurant business. He has been told by a friend that it is best for his wife to run the restaurant as a separate business for Value Added Tax purposes. Required: Briefly provide William with an outline of the VAT consequences of setting up the restaurant business in the manner he describes; particularly note any disadvantages or adverse consequences which he should be aware of. (4%)

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Concepts in Federal Taxation 2019 (with Intuit ProConnect Tax Online 2017 and RIA Checkpoint 1 term (6 months) Printed Access Card)

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