Question

Mrs. Betty’s dream is to open a restaurant to share all of her mother’s delicious recipes. In early 2018, a friend of Mrs. Betty was selling their food truck, and Mrs. Betty jumped at the opportunity to start her business. On December 1, 2018, Mrs. Betty began operations serving a few family recipes out of the food truck. Mrs. Betty decided not to incorporate her business until she decides whether this will be a profitable venture. Therefore, Mrs. Betty reported the December 2018 income from the food truck business in her 2018 personal tax return.

It is May 2020 and since 2019 is the first full year of operations, Mrs. Betty has come to you, a CPA, to help prepare her 2019 personal tax return. She has calculated her 2019 income from her business as $120,000 and deducted the following amounts in computing that amount:

 Amortization expense: $20,000

 Legal fees incurred relating to general operational matters: $5,000

 Donations made to registered charities: $500

 Interest paid on late filing 2018 GST/HST return: $120

 Family vacation costs paid: $2,500

 Gym membership fee paid for Mrs. Betty: $600

 Salary paid to son working part-time in the business (summer only): $5,000

 Accounting fees incurred for bookkeeping: $1,200

 Interest paid on loan used to purchase food truck: $4,500

REQUIRED: Part A

Calculate Mrs. Betty’s minimum 2019 taxable income, providing a brief explanation or section reference for each adjustment. For each item that does not require an adjustment, please provide a brief explanation or section reference. For items that impact other parts of her 2019 tax return (i.e. not part of taxable income), please explain what the item specifically affects and a section reference.

Part B

Assume that Mrs. Betty’s total taxes payable for 2019 is $24,000. She estimates that in 2020, her business will take off and her tax liability will be $42,000. In 2018, Mrs. Betty paid income taxes of $15,000.

What are Mrs. Betty’s minimum 2020 tax instalments and when are they due? Show all calculations used to determine all possible alternatives to calculate instalment payments and explain why you chose the method you did.

Part C

Mr. Betty works for an engineering company in Waterloo. He files his own tax return which always makes Mrs. Betty nervous. Please explain to Mrs. Betty when her husband’s 2019 tax return is due.

Answer 1

As we know that expenses related to business or operations of business or furtherance of business are only allowed at the time of calculating taxable income of Mrs. Betty. We can see that some of the expenses which are not related to business are also deducted from her taxable income as expenses.

so we have to add back such expenses which are not business expenses to the income mentioned before ie. $120000 and they are follows:

1) Family Vaccation costs $2500

2) Gym membership fees $600

So after adding back the above mentioned expenses to income, her taxable income will be ($120000+$2500+$600)=$123100.

so the other items which are considered as business expense, they are as:

amortisation, legal expenses, donations to registered charities, salary paid to son working part-time, account keeping fees etc are considered as business expenses.

note: Gst late filing fees is also considered as business expenses since the filing of gst returns are related to business and for complaince of acts, hence it is not an offence or it is not prohibited under law.

Part-B

Advance tax is paid on or before 15th of tax year, the below mentioned months and in four equal installments.

1) 15th of April

2) 15th of June

3) 15th of September

4) 15th of December.

Since, Mrs betty estimated that her business will improve and assumed that her tax liability would be $42000 for the year 2020.

Her equated four advance tax installments will be $42000 divided by 4, ie. $10500 per installment has to be paid on the respective above dates.

Note: Assumed place of residence is united state, Method is Applicable as per laws operating in the country or state.

Part C

Mrs. Betty need not to be nervous since, She and her Husband files tax return every year.

On behalf of him the company may also files his return after seeking any additional explaination regarding to his income from any other sources, if such facility is provided by the company. The due date for filing tax return is 15th April of the succeeding year.

I hope these informations are usefull, kindly provide your valuable feedback and like, Thank you and keep learning :)