Hello,

Could you please help me answering the following questions, which would help me to have a better understanding of tax situations, and to be prepared for the final exam.

Thank you

Day 1:

You and your loved ones move into a new home with a great open backyard. It has a great fire pit. The next Friday night, you go hang out at the fire pit and your next-door neighbors stop by and introduce themselves.

In the introductions, they tell you that their names are Rudy and Sarah Stowe. Both Rudy and Sarah work. They have 3 children, Charlie (Sarahs son from her first marriage), age 18, Lizzy, age 11 and Zac, age 6. Charlie is in his first year of college. Rudy is super impressed that you have a career in tax. He tells you how he doesnt understand why our country doesnt have a flat tax to make paying taxes easier. How do you respond?

Day 2:

Sarah stops by to give you some home baked banana bread as a welcome to the neighborhood gift. While she is there, she mentions that she is so proud of Charlie because he was just awarded a college scholarship. She says that she isnt sure if it will be taxable to him though. What questions would you ask to see if it is taxable? (Record hypothetical answers she provides so you can be prepared to do their tax return at year end).

Day 3:

Rudy joins you out at the fire pit after he gets home from a long day of work. He works as a sales person and spends much of the day driving to see customers. Today, his company awarded him a $300 bonus and vase with the company name on it for his 20 year anniversary of working for the company. He grumbles about wondering if he will have to pay tax on it. What do you say?

Day 4:

You are out getting the mail and Sarah pulls up. She gets of her car and is crying. Her mom just died and her dad had already died last year of Covid. She says that she is the executor of the estate and wishes that she werent. She shares that when her dad died, it took up until last month to finalize the estate where Sarah and each of her siblings received a $10,000 inheritance. Some of the time delay was the result of her siblings complaining that Sarah took compensation from the estate of $50,000 in March for her services.

It is 4^th of July. Charlie keeps you up until 2:00 am shooting off fireworks from possibly your fire pit.

Day 5:

On your way to work, you go to Starbucks for a grande coffee because you didnt sleep well. You see Sarah there who tells you that the person in front of her paid it forward and saved her $10 for her coffee and muffin. She doesnt pay it forward for you though.

Day 6:

Sarah pops by to complain about her siblings. She says that they are telling her that she will be in trouble with the IRS. She tells you that she doesnt think that is true and she doesnt even need to think about taxes until after the first part of the year when she is getting stuff together for her tax return. Is she right?

Day 7:

You hear the doorbell but decide to not answer because you need a break from your neighbors.

Day 8:

You hear Charlie outside boasting to your other neighbors that he found a expensive watch (worth $1,000) and $500 in cash on his way home. He says he isnt going to turn it into the police.

Day 9:

Sarah tells you that she was named as the beneficiary of her mothers life insurance policy and that she received a check for $250,000. They might use it to put in a pool.

Day 10:

You spend the afternoon making a gourmet dinner using the tomatoes and basil that you grew in your own garden.

Day 11:

When sitting out at the firepit, Sarah tells you about one of her employees at the small company that she owns. This employee, Lala has fallen on hard times. Sarah feels badly for her so she loans Lala $25,000, no interest and asks Lala to pay the loan back in a few years. You wonder is Sarah will ever get the money back.

Day 12:

You hear arguing from Rudy and Sarahs house.

Day 13:

You find out that the arguing was with Sarahs X-husband. He had just paid Sarah the last alimony check of $1,000 per month this past June. That was the same month that he stopped paying child support of $400 a month since that is when Charlie turned 18.

Day 14:

You see an Uber pick up your neighbors as they leave on a two-week vacation. Whew!

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Day 30:

The neighbors are back from vacation and they are still really sunburned. They come by to tell you all the highlights of the trip. The only bad thing that happened was that they were pickpocketed. The swiper got away with $300 cash.

Day 31:

Rudy stops by the firepit to boast about how strategic he is about life. He owns a small business called From Abroad. When he travels on vacation with his family, he brings back 3 souvenirs and lists them for sale on eBay. He says this allows him to deduct all the expenses of the vacation because this vacation expense was needed to attain the items to sell. He purchased 3 blankets for $30 each. He has already sold these on eBay for $50 each. The total cost of the vacation was $8,000. What questions would you ask Rudy to see if his vacation strategy is right?

Day 32:

Rudy comes by again. Before you can say that you have some concerns about his From Abroad business, he tells you about another side business that he is just starting. This business, Rudys insurance Co., is a small insurance sales company. He intends to hire 2 employees by the end of the year. He spent $6,000 in qualifying start up costs that included computers, office furniture and supplies. Throughout the rest of the year, the costs are minimal. This business makes sense since Rudy is currently employed by an insurance company as a salesperson.

Day 33:

You run into Charlie out front. He seems to be with some shady friends. After they leave, you confront Charlie. He seems almost proud that he is selling drugs to some of the teens in the neighborhood. He says that he has earned over $10,000 and his cost of good sold was only $1,000. He admits that he has other expenses though of $3,000 for driving, security and packaging materials.

Day 34:

Although the neighbors house seemed quiet while they were gone, you find out they rented out for 10 of the 14 days for $1,000. This is the only time this year that they rented it out.

Day 35

Rudy takes a client to dinner related to his new start up, Rudys Insurance Co. You see him come home and you stop to say hi. What do you recommend to him with respect to the dinner in case he wants to claim it as a business expense? In addition to dinner, Rudy gave his client a $50 gift card to a local wine shop.

Day 36

All is quiet today

Day 37

While you are relaxing at your firepit, Sarah and Rudy come by explain to you that they probably arent going to put in a pool. They want to invest some money for retirement instead. They arent sure how to do this or what the difference between a conventional IRA or a Roth IRA. What do you tell them?

Day 38

Rudy and Sarah thank you for explaining the IRAs to them. They bring you a cake as a thank you. They also tell you that they invested the full amount into a conventional IRA 6,000 and also the maximum for their two younger childrens educational IRAs (also called a CESA) 2,000 each. How much do they invest?

Day 39

Rudy bought too many printers for his new insurance business. He sells you one for $500. He paid $550 for the printer one month ago. He wants to take the most depreciation expense as he can.

Day 40

You take a walk with Sarah around the neighborhood and she points out a house that her parents had owned before they died. You find out that Sarah rents this house out and receives $1,000 rental income for it. Her expenses average $600 a month. She serves as the landlord and doesnt use a management company. She has been the owner since August 1^st.

Day 41

Sarah comes over and complains to you that Rudy had invested in this investment that didnt sound good to you and he ended up losing $10,000. Sarah is also upset that a diamond necklace that she had inherited was stolen. What questions would you ask Sarah to know how these should be reported. Include her answers so you can create the return.

Skip some days ahead you dont see Sarah and Rudy much because everyone is busy with school and work.

Day 90

You are thinking ahead for the end of the year and as you expected, Rudy and Sarah see you and ask you to prepare their tax return for them. They will pay you $500. They want to file Married Filing Jointly. They also just want to take the standard deduction instead of itemizing their personal deductions (so you wont need a Schedule A).

Day 91

You are curious if Sarah, her X-husband or Charlie himself can claim Charlie as a dependent. What questions would you ask her and what conclusion do you come to based on her responses.

Day 92

You say hi to Rudy while he is digging a big envelope out of his trash can. He tells you that he accidentally threw away some receipts for business expenses of Rudys Insurance Co. These included:

Business insurance: $600

Insurance, salaries arms length, interest, taxes, legal fees,

Last day of the year

You need to computer Rudys tax gain or loss on his Sch C. You also need to find out how much they spent on day care and document that they meet the related requirements. Finally, establish if any college payments for Charlie are eligible for a credit. Sarah and Rudy dont have any educational themselves that would qualify for any educational credit.

Sarah sells the rental property and closes on the last day of the year.

January

As their tax reporting forms roll in, they bring them over to you so you can use this information on their tax return. The forms include:

Wages for Sarah: $100,000

Withholding on Sarahs wages: $30,000

Wages for Rudy: $100,000

Withholding for Rudy: $30,000

Wages for Charlie: $6,000

Withholding for Charlie $100

Investment items for their Schedule D:

Feb 20:

Sarah and Rudy say they dont expect any more information come in and you can get started on the return. Youll need to complete the Form 1040 and schedules C, D, and F.

Day	Consideration for tax/notes/questions to neighbor	Responses from neighbor/other notes	Amount and where included on return