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Hello! I need help with this case study all the data is given on the case, write at least 2 to 3 pages. Here are the rnthode: 1. Issue: begin your answer by stating the issue presented by the essay question. The issue should be stated in the form of a question in a specic, rather than general form. 2. Rule: the rule describes which law or test applies to the issues. The rule should be stated as a general principal, and not a conclusion to the particular case being briefed. 3. Analysis: the analysis must be longer. It involves applying the rule to the facts of the problem or question. You should use the facts to explain how the rule leads to conclusion. Discuss both sides of the case when possible. Do not merely state a conclusion without also stating reasons for it. Sweetness and Spice: Tax Issues for Foodies Susan E. Anderson Elon University [-1. Lynn Stallworth Appalachian State University ABSTRACT: A food blog and a catering business provide an issuerich context in which students examine tax issues involving individuals, a partnership, and a single owner LLC. The case illustrates how advances in technology and social media occur without the issuance of directiy applicable tax guidance, thus introducing students to uncertainty in interpreting the tax law and pr0viding professional advice. The goals of the case are to increase students' (1) abilities to identify tax issues for individuals and small home-based businesses, (2) tax research prociency, (3) written communication skills. (4) technical knowledge, and (5) experience in tax planning. The case helps students develop four of the core competencies expressed in the AICPA's {2012) CPA Vision Project, including improving students' abilities to interpret converging information, think strategically and critically. communicate effectively, and adeptly use technology. Student responses to a posttest questionnaire indicate that the case helped develop their issue identication, tax research, and writing skills. Keywords: biog; small business; hobby; tax; passive; tax research; business use of home. INTRODUCTION isters Kate Millette and Didi Millette Kennedy both have degrees from culinary school and have long wanted to start a S food-related business together. In December 2014 they decided that a food blog would be the perfect choiceeach could devote as much or as little time as she wanted to, while putting their culinary backgrounds to good use and indulging their interests in food and photography. The blog, Sweetness and Spice, is also a means of promoting Kate's catering business. The sisters grew up in a family in which food was celebrated and they love sharing recipes, weekly meal plans for family dinners, and other food-related content including reviews of restaurants, wine, kitchen products, and cookbooks. Kate is the sole owner of her catering business, Katering, LLC. The business is operated out of her home in Asheville, North Carolina where she lives with her 12-year-old daughter, Kelsey. Katering specializes in luncheons and receptions for business clients. The business has a loyal customer base and generates cash of around $5,000 a month. Kate borrowed $29,000 on a home-equity line of credit in 2014 to build a modest commercial kitchen in the basement of her home. All of the food for her catering business and blog is prepared in the commercial kitchen. Kate has a separate kitchen on the main oor of her home, but generally prepares family meals in the basement kitchen because it is more convenient. Most of the kitchen renovations were completed at the end of 2014 at a cost of $25,000. A commercial stove was purchased for $3,800 at the beginning of March 2015. Kate has converted an extra bedroom in the house to an ofce for both the catering business and the blo g. She made several expenditures during 2014 to renovate the ofce. The commercial kitchen occupies 360 square feet and the ofce 225 square feet of her 2,250 square foot home. Kate uses the home ofce 25 percent of the time for the blog and the remaining time for Katering. Kate's ling status is Head-ofHousehold and she is a cash-basis taxpayer. Kate posts to the blog three or four times a week, spending between 15 and 20 hours per week. Her weekly posting schedule is a weekly meal plan, one or two recipes, and a product review. In the food blogosphere, it is common for publishers to send out duplicate copies of cookbooks to bloggers in the hope that the blogger will review the cookbook and host a blog give-away with one of the copies. Wholesalers of kitchen products do the same. During 2015, Kate received cookbooks valued at $900 and kitchen products, including a food processor, a set of knives, recipe software, a combination gas grill and smoker, along with other items, valued at $2,150. Kate reviewed about half of the cookbooks and all of the other items on the blog. She hosted a series of giveaways to boost biog readership, distributing products with a retail value of $1,700. Kate drives her personal vehicle, a full-sized van that she purchased with die catering business in mind, to catering jobs as well as for shopping trips. She is careful to keep good records of business mileage. She drove the van 5,250 miles to and from catering jobs in 2015. Mileage to and from the grocery store and other shopping venues totaled 540 miles in 2015. On these trips, Kate generally purchases food for the catering business and the blog as well as for personal consumption. Kate has determined that 348 of the 540 miles should be allocated to the blog. Kate develops recipes for the blog and for her catering business in her basement kitchen. To facilitate record keeping, she purchases food for the catering business with funds from her DBA Katering bank account, and food for the blog and personal consumption from her personal bank account. Occasionally, recipes are discarded if Kate is not happy with the results after several tries. In 2015, Kate spent $1,640 on ingredients used in recipe development. About 25 percent of her successful recipes were added to her Katering menu, with the others becoming topics for blog posts. Since she typically makes several versions of a recipe while perfecting it, she, Kelsey, and friends often eat her attempts. For the recipes posted to the blog, she photographs key steps throughout the preparation process, then styles the dish using appropriate props. Kelsey frequently helps with the photography and food styling. Kate has purchased various items to use in styling the photos, including table linens, dinnerware, a variety of white serving pieces, and other decorative items appropriate for various holidays as well as birthdays, bridal and baby showers, and graduations. While she does not often formally entertain, Kate has occasionally used these items for family special occasions. Didi collects Waterford crystal, Depression glass, and antique sterling silver atware that she and Kate also use as props in photographs. Kate is an accomplished amateur photographer and regularly attends courses on food photography and styling as well as editing with Photoshop. In 2015, Kate attended a day-long food photography workshop at a cost of $225. Didi lives in Charlotte, North Carolina and is a stay-at-home wife and mother to three teenaged boys. She and her husband le a joint return and are cash-basis taxpayers. Including his bonus, her husband Dave earned approximately $216,000 in 2015 as a bank executive. Didi teaches weekly cooking classes for children at a local kitchen shop, earning $530 a month. The kitchen shop pays her as an independent contractor. She is also writing a cookbook for teenagers. At the New Orleans food blog conference she attended with her sister, she was able to nd a publisher and subsequently received a $7,500 advance for the book. Didi volunteers regularly as a chef at a local farmrtortable nonprot cafe. One of Didi's hobbies is entering cooking contests. She won $2,000 for second place in the 2015 Dandiest Donut contest. In 2015, Didi personally spent $325 on ingredients she used in developing recipes for the children's cooking classes, $1,245 on ingredients she used for developing recipes for the cookbook, and $55 on ingredients used to develop the doughnut recipe. Didi entered a number of other cooking contests that she did not win, spending $265 on ingredients for recipe development for those unsuccessful attempts. Didi typically purchases these ingredients on her regular weekly grocery shopping trips. Even her spectacularly unsuccessful recipe development attempts tend to be eaten by her teenaged sons and their friends. She jokingly calls the group her \"judges." Dave and Didi are planning a Spring 2016 trip to Barcelona and the Rioja wine region in Spain. While on the trip, Didi will blog about the region's cuisine, restaurants, and wine. To increase her knowledge about wine for blog postings, Didi is currently taking a $150 wineltasting course offered through a local university. The tuition was paid by Sweetness and Spice. Didi typically posts to the blog once a week, and posts recipes to Sweetness and Spice about once a month. Her recipes tend to be old family favorites, which rarely require additional development. Didi, an avid traveler, also posts restaurant reviews and shares her experiences with the food from a variety of cultures as well as at local festivals and other food events. Didi and her husband dine out regularly. During 2015, she was comped meals valued at $1,300, two-thirds of which she reviewed. Dave is also a savvy diner so Didi typically incorporates his comments into her reviews. Didi generally devotes around 5 hours each week to blog posts. Didi, in an effort to help her sister following Kate's recent divorce, deposited $10,000 in a joint checking account (DBA Sweetness and Spice) to cover startup costs for their blog. The account is used for all blog deposits and expenditures. These expenditures are listed in Exhibit 1 and include reimbursements for charges made on Kate's personal credit card and mileage based on the standard mileage rate. Kate and Didi consider the blog to be a separate business from Katerin g LLC and do not comingle the funds. The sisters made these decisions on their own with the help of Didi's husband and have not contacted a lawyer, CPA, or any other professional for advice. Kate and Didi have organized the blog as a partnership. They paid the annual domain registration fee and web design consulting fees for site design in January before the blog's rst post on March 1, 2015 and are paying a Search Engine Optimization consultant on a monthly basis. Kate and Didi attended a food blogging conference in New Orleans in April 2015. Kate was a featured presenter at the conference, participating in a panel session "How to Use a Food Blog to Promote Your Catering Business.\" The event organizers camped both bloggers admission to the conference ($250 each), including meals, and paid for Kate's lodging, which she shared with Didi, during the three-day event. The value of the hotel room provided was $680. Food blogging conferences commonly give participants \"swag bags\" with goods donated by various sponsors and exhibitors. Kate and Didi each received swag bags that included a cookbook with a retail price of $40, samples of Creole spices and other regional food products valued at $50, a t-shirt and apron valued at $60, and other miscellaneous promotional items valued at $20. Kate and Didi ew to the conference. Kate purchased her ticket and Didi used her husband's frequent yer miles. Didi paid $380 for incidental expenses on the trip from her personal account, half of which was a hotel bar bill.l In addition to networking, Didi attended sessions on recipe writing and nding a cookbook publisher, as well as attending her sister's presentation. Kate attended sessions on food styling, iPhoneography, and branding a blog. Sweetness and Spice earns revenues primarily through advertising and other afliate programs. The blog hosts advertisements through a food blogger network and earns perclick payments when readers click on the ads. The bulk of their revenues are eamed through an afliate program with a large online retailer. Kate and Didi have set up a \"store\" on the blog website. Sweetness and Spice earns a percentage of sales when customers click through the store to the retailer's site and purchase any item on the visit. Deposits are made to the blog's PayPal account and then transferred to the DEA Sweetness and Spice checking account. Sweetness and Spice has earned $5,950 in revenues in 2015 and reports on the cash basis. Kate and Didi have agreed that prots and losses will be split equally. It is now February 2016 and Kate asks you to prepare her 2015 tax return. Before doing so, you must resolve several questions about Kate's business activities. REQUIREMENTS 1. Identify and list all of the tax issues in the case. 2. After the class has identied the issues, you will be assigned a specic topic to research. Prepare a research memo summarizing your ndings. 3. Calculate the 2015 deduction for business use of the home for Sweetness and Spice, showing all work. Ignore depreciation on any kitchen appliances and the commercial kitchen. Kate does not wish to elect bonus depreciation or Section 179 depreciation on any of the blog assets. How should Sweetness and Spice report this deduction? Compare the amount of the deduction using actual expenses to the safe harbor rule under Rev. Proc. 2013-30. 4. Calculate Sweetness and Spice's ordinary income. Ignore depreciation on any kitchen appliances and the commercial kitchen. Kate does not wish to elect bonus depreciation or Section 179 depreciation on any of the blog assets. 5. Prepare a list of tax-planning ideas for Kate. Didi, and Sweetness and Spice. EXHIBIT 1 Sweetness and Spice Cash Receipts and Disbursements for the Year Ended December 31, 2015 Cash Receipts Cash receipts from sales $5,950 Contribution from Didi 10,000 Total receipts $15,950 Cash disbursements Computera $1 .500 Nikon camera and lensesb 1.900 Business cards and stationery 50 Professional photos of the sisters for the website 300 Video camera\" 925 Website design consultant 700 Blog hosting fees 120 Domain registration 80 Photography studio equipmentc 500 Photo editing softwareC 300 Ofce supplies 250 Printera 250 Search engine optimization consultant fees 500 Software for blogb 250 114 Anderson and Stallworth Food costs for blog ($1,640 X 75%) 1,230 Wine-tasting class 150 Photography class 225 Automobile mileage (calculated using standard mileage rate) 200 Travel to New Orleans for Kate'1 350 Total disbursementse $9,780 Ending Cash $6,170 a Purchased January 5, 2015. b Purchased February 1, 2015. c Purchased March 1, 2015. d Assume that the primary purpose of the trip is business. \" The disbursements listed do not include the following expenses for the entire home: property taxes $2,890, homeowners' insurance $590, and utilities $3.240. Kate's basis for the home is $320,000, 20 percent of which is allocated to land. Kate does not have a mortgage on the home, which was placed in service in February of 2014. REFERENCES American Institute of Certied Public Accountants. 2012. Final Report, CPA Vision Project. Available at: http:{'fwww.aicpa.orgfresearchj cpahorizon52025lcpavisionprojectfdownloadabledocuments/cpavisionprojeet_nalreport.pdf