Our client, Pat Walshlander has requested our advice regarding the potential tax treatment of an anticipated change in his career path. Several years ago, Mr. Walshlander began participating in local and regional talent shows as a ventriloquist with “Hobo”, an antique puppet his grandmother had given to him as a child. His grandparents were former vaudeville performers and his childhood was spent listening to their stories and practicing/perfecting his acts with Hobo.

He and Hobo have enjoyed moderate success recently and even won a few cash prizes and a cruise to the Caribbean in previous years. His interest and participation in the activity have increased markedly last year - he spent most of his free time rehearsing new ideas, traveling to shows in the surrounding states, and taking acting, voice, and singing classes to improve his performance. His “day job” as a marketing representative for a computer software company pays very well and allows him to accommodate the growing cost of his increasing ventriloquist activities. Mr. Walshlander is also the beneficiary of a significant trust established by his grandparents.

Last year, he purchased a large recreational vehicle last July that he lived in and used to travel with Hobo across the country. This allowed him to accommodate his ever-growing wardrobe collection of matching business suits he and Hobo use in their performance (one of shows; trademarks is the use of identical, albeit differently sized, designer suits that reflect the latest trends in men’s business wear - these suits are expensive and are a significant yearly cost of the show). Mr. Walshlander is excited about his new endeavor but has several questions about how this will impact his personal tax situation. Prior to 2019, he had treated his ventriloquist activity as a hobby, but is now wondering if he could/should treat it as a business? Information for his 2019 year is stated on the following page.

Mr. Walshlander’s filing status is single, he is 50 years old and not blind. Please review the cases posted in Week two and prepare a brief letter (no more than two pages) to Mr. Walshlander outlining your advice on the potential tax treatment of his new venture and planning tips to ensure the most favorable tax treatment for his activity. Also, please prepare a draft form 1040, including all applicable schedules – hint includes at least the following: Schedule 1, Schedule C (depending on your analysis of the activity), Schedule SE, From 8995 or 8995-A as appropriate. If you need to make any additional assumptions to complete the assignment, please state those assumptions and if we have any additional questions for Mr. Walshlander please note them in your letter.

Pat Walshlander 2019 Tax Information

Marketing Income $150,000

Trust Income $0

Ventriloquist Income $60,000

Ventriloquist Expenses

Business suits

Mr. Walshlander $2,500

Hobo $2,500

Travel Expenses

Meals $5,000

Lodging $4,000

RV Expenses

Purchase price $20,000

Fuel 6,000 Insurance 2,500

License 450

Assume Mr. Walshlander would like to take the largest current year deduction possible for the RV. 

Note: assume the facts are for 2021 and use the 2021 tax forms.