In: Accounting
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Danielle works full-time as a systems analyst for a consulting firm. In addition, she sells plants that she raises herself in a greenhouse attached to her residence. During the past five years, the results from raising and selling the plants have been as follows: Year Net Profit (Loss) from Scenario 1:
Scenario 1 |
|
Year 1 |
(2,000) |
Year 2 |
(1,200) |
Year 3 |
1,000 |
Year 4 |
2,500 |
Total Years 1-4 |
300 |
Year 5 |
(500) |
............................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................................
1)
a. Please create a Scenario 2, where the cumulative profits in years 1-4 are still $300 but the taxpayer would be in a better position regarding year 5 losses.
Scenario 1 |
Scenario 2 |
|
Year 1 |
(2,000) |
|
Year 2 |
(1,200) |
|
Year 3 |
1,000 |
|
Year 4 |
2,500 |
|
Total Years 1-4 |
300 |
300 |
Year 5 |
(500) |
(500) |
b. Comment on your answer to 2 above. Why is Scenario 2 better for the taxpayer? You may also show your erudition by citing, referencing, and attaching additional sources.
1) One must perceive If his hobby may be a recreational pursuit or a profit-making endeavor. Earning a living doing one thing one loves may be a natural goal, however he should be clear regarding his intentions to say expenses.
The federal agency defines a hobby as Associate in Nursing activity:
We do strictly for the love of it, notwithstanding the
price.
And don't expect profit reciprocally.
This doesn't mean you are prohibited from earning any cash.
typically speaking,hobby may be a business if:
Some or all of your financial gain comes from the hobby. as an
example, you sell overhand candy on Associate in Nursing e-commerce
store, and also the earnings account for half your annual financial
gain.
Your hobby experiences profits and losses. as an example, you earn
vital profits from Saint Valentine's Day sales, however you've got
spent an excessive amount of on a flavor of Halloween candy that
did not sell.
If you're taking footage, taking part in the string, creating
crafts, coaching horses, or the other variety of varied activities
to create a profit, then the federal agency determines, for tax
functions, you're running a for-profit business, not a hobby.
Here ar 9 queries the federal agency has provided to work out whether or not your activity is engaged certain a profit (e.g. a business):
Does the time and energy place into the activity indicate
Associate in Nursing intention to create a profit?
Do you rely upon financial gain from the activity?
If there ar losses, ar they thanks to circumstances on the far side
your management or did they occur within the start-up part of the
business?
Have you modified ways of operation to enhance profitability?
Do you have the data required to hold on the activity as a
triple-crown business?
Have you created a profit in similar activities within the
past?
Does the activity create a profit in some years?
Do you expect to create a profit within the future from the
appreciation of assets employed in the activity?
Beginning in 2018, the federal agency does not permit you to deduct
hobby expenses from hobby financial gain. you want to claim all
hobby financial gain and don't seem to be allowable to cut back
that financial gain by any expenses.