Question

Rodney owns 4 businesses and wants you to help with his tax return. Based on the following information, explain how you would add these activities to his 1040 form and list the forms needed along with what would be included on each form. What tax planning advice to you have for Rodney for next year?

Activity A - A sports bar and grill in Birmingham, AL. Taxable income from this operation is $43,000. Rodney runs the bar 10 days a year while the manager is on vacation.

Activity B - A men's clothing store in Tuscaloosa, AL. The clothing store has a net loss of $29,000 for the year. Rodney worked there 5 days during the year Activity

C- An office building in Atlanta, GA. Rodney is the building manager and has an office on the first floor. He has 28 tenants in the building and has a taxable income from this operation of $540,000., Activity D - A golf course in Macon, GA. Rodney stops by and offers advice about 30 weekends a month and then plays a round of golf. The golf course has taxable income of $230,000 per year.

Answer 1

ANSWER

As per the given question,

Tax planning and suggestions for Rodney:

Activity A - A sports bar and grill in Birmingham, AL. Taxable income from this operation is $43,000. Rodney runs the bar 10 days a year while the manager is on vacation.

Answer: This income will be included in Part 1 of schedule SE of form 1040. This will be considered as a business income of individual. This is considered as a income from business and operations. For this business income he also need to give details of closing and opening stocks if any in the schedule to form 1040. This income will be included in the total income of an individual as per the law.

Activity B - A men's clothing store in Tuscaloosa, AL. The clothing store has a net loss of $29,000 for the year. Rodney worked there 5 days during the year

Answer: This loss will get set off against the business income, which will be included in the total profit of the individual. This will be added in schedule: H. This is also a income from business and operations and for this also details of opening and closing stock has to be given in schedule to form 1040. Since it’s a loss it has got a benefit of getting set off against income from other business and also it can be carried forward if not set off in the current year.

Activity C- An office building in Atlanta, GA. Rodney is the building manager and has an office on the first floor. He has 28 tenants in the building and has a taxable income from this operation of $540,000.

Answer: This is a rental income, which will be included in the total income of the individual. This rental income will be included in Schedule E of form 1040

Activity D - a golf course in Macon, GA. Rodney stops by, offers advice about 30 weekends a month, and then plays a round of golf. The golf course has taxable income of $230,000 per year.

Answer: This is other income of an individual, which will be included in the line number 21 of the form 1040. This will considered as a service income or consulting income.

Following are the recommendations for the tax planning:

In form 1040 many of the deductions and exemptions available for and individual.

Educator expenses

Certain business expenses of reservists, performing artists, and

fee-basis government officials. Attach Form 2106 or 2106-EZ 24

Health savings account deduction. Attach Form 8889. Moving expenses. Attach Form 3903

Deductible part of self-employment tax.

Self-employed SEP, SIMPLE, and qualified plans

Self-employed health insurance deduction

Penalty on early withdrawal of savings

IRA deduction

Student loan interest deduction

Tuition and fees. Attach Form 8917

Domestic production activities deduction. Attach Form 8903

As an individual is you should try to get maximum of benefits provided for the deduction and saving of taxation. In addition, the loss, which is from the clothing store, can be carried forward and set off against the business income. Alternatively, this can be net off against income from business in this year and tax expense can be reduced. An individual must be having kids at home or he himself must be studying then in that case, he can get benefit of tuition fees deduction from the total income. In addition, interest on any loan taken will be also deductible from the total income.

Now from the business income an individual can deduct all the expenses he has incurred for the business and hence can get the benefit of exemptions.

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