Tax Issues: Hobby loss rules for the ranch. Martha is a successful orthodontist

After many years as a successful orthodontist, Martha has decided to buy a ranch in the country. Martha has always liked horses and anticipates acquiring several for the ranch. On the weekends, Martha can relax at the ranch and ride her horses. The cost of operating the ranch and owning horses will be substantial so she plans to treat it as a business and use the expenses to offset her income as an orthodontist. She anticipates that the ranch will appreciate in value over the next ten years. What tax issues do you see with her plans? Discuss anything Martha can do to strengthen her situation. What are the consequences if the ranch is never profitable?

Depreciation on Vehicles to maximize tax benefit

Grace, drops by the office on the Monday after Thanksgiving. She says that over the holiday she was reviewing her books and projecting the remainder of the tax year. She projects that her Schedule C will show a net profit of $300,000 this year. This is substantially higher than in the prior year. She is concerned that she will owe too much tax this year. You advise her that since she is cash basis she should attempt to defer her income to next year and accelerate her expenses into this year to reduce her tax liability. She mentions that she had been planning on purchasing a new $50,000 vehicle next year but that she can acquire it before the end of the year to save taxes this year. She s... click for more

S-Corporation T-F questions: built-in gain, officer salary, audit risk, year-end, and qualifications for shareholders.

T-F 1. S corporations who chose to be taxable C corporations may have to pay a 35 percent tax on certain built-in gains. 2. Revenue agents who audit S corporations are on the alert for shareholder/employee salaries that are unreasonably low. 3. An S corporation can use any taxable year it wishes. 4. A taxable C corporation cannot be a shareholder in an S corporation.

Life Insurance Proceeds

Don is the beneficiary of a $50,000 insurance policy on the life of his mother, Anna. To date, Anna paid premiums of $16,000. What amount of gross income must be reported in each of the following cases? a. Anna elects to cancel the policy and receives $20,000, the cash surrender value of the policy. b. Anna dies and Don receives the face amount of the policy, $50,000. c. Anna dies and Don elects to receive $15,000 per year for four years.

Self Help Income

In which of the following situations would the taxpayer realize taxable income? a. A mechanic performs work on his own automobile. The mechanic would have charged a customer $400 for doing the same work. b. A mechanic repairs his neighbor's personal automobile. In exchange, the neighbor, an accountant, agrees to prepare mechanic's tax return. The services performed are each worth $200. c. A mechanic repairs his daughter's automobile without any charge.