Answer the following questions and state the reason for your conclusion. Please provide your answers in the space provided below each question.

Aazeen Meraj recently completed her degree in accounting having graduated from George Mason University. After taking her tax class, she decided not to become a CPA but instead to start a business offering guiding and instruction for fly fishing. In addition, she also plans to open a retail fly fishing store in Fairfax, Virginia where she also plans to locate her personal office at the store. The businesses, including the fly fishing store, will be conducted as a sole proprietorship with the name of Aazeens Fly Fishing Enterprises. As her accountant, she has come to you for some tax advice before making decisions on how to begin her business. She asks the following questions:

Aazeen wants to know if the income and expenses for the business is required to be reported on a separate business tax return or as part of her personal tax return.

What federal income tax return and accompanying schedule should be used to report the business income and expenses?

Before starting her business, Aazeen hired Edward Espinosa, a marketing consultant, to determine the best location to locate her business. Edward provided a study on the population income levels, location of good fishing streams and rivers, and fly fishing store competition in various locations in the Washington DC, Virginia and Maryland areas. His report concluded that being located in Fairfax County, Virginia would be the best overall business location. Aazeen paid Edward $10,000 for his services. How is the $10,000 treated on the Aazeens businesss tax return?

Aazeen owns a Land Rover. If she only drives to the office at the fly shop and back to her home, will she be able to deduct the costs of the car such as depreciation, gas and oil, car repairs and maintenance, insurance, etc.?

If Aazeen also uses the Land Rover to take clients to the various rivers and streams for guiding and instruction, would she be able to claim a deduction for automobile expenses for these costs?

Dr. Ladan Hussein, a dentist, has asked to trade services. Dr. Hussein will clean Aazeens teeth twice and year if Aazeen will take Dr. Hussein fly fishing for a day each March. Would either of them have to report any income from this arrangement?

Aazeen typically charges $450 per day for a guided fly fishing trip. Aazeen donates a guided fly fishing trip to be auctioned at her church bazar, the proceeds to go to the church. If Aazeen provides a day of guided fishing to the winner of the silent auction, can Aazeen deduct $450 as a charitable contribution on her tax return?

Aazeen provides clients with all of the equipment they will need for a fly fishing trip. During one of her guided trips, her client developed a leak in the waders she provided. The manufacturer of the waders charged her $30 to repair the leaky waders. Can she deduct the $30 or must she capitalize the amount and a recover the cost using MACRS depreciation?

The fly fishing store sells flies for $2.50 each which it purchases from a manufacturer for $.50 each. As part of her guiding service, she provides flies without any additional fee other than the $450 per day charge. On a trip with Binh Le, one of her best clients, she loses 8 flies that got caught in trees. How much can Aazeen deduct for the flies:

$20,

$4

Nothing because the flies were part of the $450 guiding fee?

Aazeen purchases a number of fly rods that she lets clients use on guided fly fishing trips with her. After 3 years, she typically sells them. A client wanted to purchase the fly rod he used during one of the trips. Aazeen originally purchased the fly rod two years ago for $600, has claimed $200 of cost recovery through depreciation, and sells it to the client for $300. How is the loss treated on this sale assuming there are no other gains or losses on equipment for the year?

The fly rod manufacturer has a special promotion offer where if Aazeen will exchange 3 of her used fly rods for 3 new fly rods to be used in her guiding service. The old fly rods were purchased two years ago, are worth $300 each, and each fly rod has an adjusted tax basis of $400. After the special promotion offer, the cost of the new fly roads are $500 each. Aazeen pays the manufacturer an additional $600 plus delivered to the manufacturer the three used fly rods. Is the $100 loss on each of the used fly rods:

An ordinary loss

A capital loss

Not currently deductible because it is deferred

Never deductible because the loss is from the sale of a personal use asset.