2. This question is worth 20 points Matt is single, age 25 and has salary from h

Question

2. This question is worth 20 points Matt is single, age 25 and has salary from his job as a sports announcer in the amount of $50,000 Matt also has the following income and expenses related to an activity Income Mortgage interest-from his home office Property taxes from his home office $23,000 8,000 2,000 5,000 8,000 2,000 Supplies and fees Telephone 1 Bricfly define an activity classified as a hobby vs. a business? 2 List 4 factors might be usod to assist a taxpayer in determining whether an activity is a hobby or a business? 3. If a hobby, answer the following questions a. Are hobby expenses deductions FOR AGI or FROM AGI b. What form/schedule and line is hobby income reported on? Attach a copy of the form/schedule to c. What form/schedule and line are hobby expenses reported on? Attach a copy of the form/schedule to d. Calculate Matt's AGI your answer and highlight the line. your answer and highlight the linc What is the rule regarding how hobby expenses are deducted, including the ordering of expenses and f. Apply the rule in (e) above and prepare a detailed schedule of your calculation of deductible hobby all limitations? expenses are calculated AND provide a (follow the formula that we used in the hw problems). 4. If a business, answer the following questions a. Are business expense deductions FOR AGI or FROM AGI? b. What form/schedule is business income reported on? c. What form/schedule are business expenses reported on? d. Prepare a tax return for Matt, assuming he uses the standard deduction and has no dependents.

Explanation / Answer

Ans:

There are nine factors that need to be considering before activities for income and hobby:

1. Was activity carried in businesslike manner?

2. Whether the time and effort you put into the activity indicate you intend to make it profitable.

3. Whether you depend on income from the activity for your livelihood.

4. Whether your losses are due to circumstances beyond your control (or are normal in the startup phase of your type of business).

5. Whether you change your methods of operation in an attempt to improve profitability.

6. Whether you or your advisors have the knowledge needed to carry on the activity as a successful business.

7. Whether you were successful in making a profit in similar activities in the past.

8. Whether the activity makes a profit in some years and how much profit it makes.

9. Whether you can expect to make a future profit from the appreciation of the assets used in the activity.

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