VITA ( do Tax Return)

OTHER INFORMATION Rebecca paid one of Deborah's aunts $3,500 cash to watch over Deborah while Rebecca was out of town on business trips. Rebecca estimates that medical/dental expenses will be $4,230 per member of her household this year of which $3,860 will be health insurance premiums for a high deductible plan. Rebecca will contribute $2,400 to a Health Savings Account at Palma Ceia Shoe this year. Deborah got braces in June and Rebecca paid $4,800 for the treatment (which is in addition to the other health expenses). In August, 2014 Rebecca lent her friend Louise $1,500 so that Louise could visit an ailing relative in Des Moines. Louise signed a promissory note (no interest) and has never paid Rebecca back. In March, 2020 Louise perished in a boating accident and her estate declared bankruptcy a few months later. Rebecca received nothing. Rebecca has considered moving from her rented three-bedroom Bayshore apartment but has yet to take the plunge into personal home ownership. Her monthly rent is $2,720 for the 1,360 square foot apartment, electric runs $240/month on average, water is included in the rent. She makes use of one bedroom exclusively for her work. Rebecca subscribes to Frontier FiOS service paying $185/month for a package including internet, television and telephone service. She needs the internet for her work and always has the City of Tampa cable channel on to monitor for shoe repair opportunities for the city government". She tells you she has always deducted the entire Frontier bill as a business expense. In June, 2020 Rebecca acquired a 6,600-pound behemoth Chevy Suburban SUV at a cost of $60,500 plus sales tax. She sold her aging Ford Focus to a UT student. The SUV is driven, according to her carefully kept records, 5,L3 miles of its 9,500 miles in 2020 in connection with her work (she does keep a daily log of her visits to clients and prospects that confirm her business use). Additionally, she drives a load of girl scouts (including Deborah) to Disney World once a month, took her aging aunt to Jacksonville for hip surgery, delivers meals once a month for the Meals-on-Wheels program, and helps her church collect aluminum cans by driving a full load to the collection center in Wiaumama each week. Rebecca wants the maximum deduction possible for her vehicle. On July 1, 2019 Rebecca purchased a 1/2 share in an Indian Rocks Beach Condo with her friend Sally Seashell for use as a second home. They plan to use the condo on alternating weekends for personal use. The unit cost $228,000. Each made a cash down payment of $24,000, the balance was financed by Foundering Federal Bank (the owner) at 4% interest, 2 points, 30-year amortization with a five-year balloon payment due on the balance. The total annual property taxes for 2020 are $5,160 which will be paid in full in November in cash by Rebecca and Sally when the tax bill arrives, the condo fee is $280/mo. which includes fire insurance and water. The happy weekenders closed the purchase July 1, 2019, they split all of the costs "down the middle" (so Rebecca and Sally each pay half of everything). In 2010, Deborah's great grandmother died leaving $5,000 to Deborah. That money was invested in a Fidelity Mutual Fund and has grown to over $19,000 in value. Deborah's dividends come in the form of capital gain distributions made by the Fund (all reinvested) which amounted to $4,000 in 2019 and are likely to be about the same in 2020. She also has a sizable savings account that paid interest held in trust for Deborah (through September the interest on the savings account at HancockWhitney Bank for Deborah was $285). Deborah does not want to file her own tax return but may be subject to the Kiddie tax so Deborah's tax due (if any) should be included with Rebecca's income tax payable in every filing status if it is allowable to include Deborah in Rebecca's return. Rebecca babysat for two different couples in the building, this year. Both couples paid her in cash. Rebecca's total babysitting income was $660 in 2020. Deborah participates in a multitude of organized activities after school. She is involved in volleyball, swimming and plays the tuba in the school band. Last year these various activities along with the scouts cost Rebecca about $8,000. In August Deborah began her studies at Tampa Preparatory School at a cost of $23,835 plus books. Rebecca is considering furthering her education, she has always been good with numbers and has thought about getting a college degree in accounting. Deborah showed off her independent side this summer. On an adventure with some of her marching band friends Deborah borrowed mom's new Suburban one evening and customized" the vehicle by adding a mailbox as a hood ornament. When local law enforcement arrived on the scene, they determined that about $5,000 damage had been done to the Suburban and a similar amount to the custom designed mailbox in front of Bayshore's Ritz Towers (the mailbox was embedded in the front end of the Suburban). In an effort to sweep this little incident under the rug Rebecca paid the police officer $1,000 cash to "look the other way this time". Rebecca paid a contractor $3,200 in cash to fix the mailbox and a similar amount (also in cash) to "Sammy's" body shop to repair the Suburban. Deborah's phone was taken away for three days and she had to eat the school's catered Panera Bread lunch (with no avocado) for a week as punishment. In the spring of 2019 Rebecca developed plantar fasciitis, a painful condition brought on by her heavy foot use. In searching for a solution Rebecca stumbled upon an ancient blueprint for therapeutic sandals used by the Seminole tribe. Rebecca visited with tribal leaders in early summer 2019 and struck a deal to license the blueprint agreeing to pay the tribe 50 cents for each pair of sandals sold. The license agreement has a duration of 50 years. Rebecca then formed Feel Good Feet, LLC - a single member LLC owned by Rebecca. She capitalized the LLC with $25,000 in cash on August 1, 2019 On August 11, 2019 Feel Good Feet, LLC signed a contract to acquire 2.5 acres of real property in the "301 Industrial Park" located just south of I-4 near the Florida State Fairgrounds. A few days later the LLC signed an agreement to have a contractor erect a 5,000 square foot metal building (with a brick front facing) on the site. The contractor will also complete a 2,200 square foot parking lot and landscaping. The land was $150,000 and the completed building was $75,000 with the drainage, landscaping and parking costing $10,000. Equipment for fabricating plastics, packaging and materials handling equipment cost $80,000. Office computers were $8,000 and office furniture was $12,000. The total loan (including $65,000 of operating capital cash) was $400,000 advanced by the Bank of Plant City at 6% interest, interest only payments on a five year "balloon" note. Rebecca personally guaranteed loan repayment when the entire transaction closed on January 2, 2020. The building was completed, equipment installed and the operation began its initial production of sandals on April 15, 2020. Rebecca plans to open her own retirement account this year. She overheard some CPAs partying at the Palma Ceia Country Club Cabbage Festival Ball discussing the merits of an SEP-IRA with unlimited contributions for self-employed individuals. She thinks she may qualify for an SEP-IRA which would allow her to sock away at least $12,000 in such an account. She will follow your advice on how to invest some money for her sunset years. 9 Feel Good Feet, LLC (The results of Feel Good Feet, LLC should be included in Rebecca's tax return using a Schedule to report the single member LLC's results) Rebecca started this business with the support of her boss at Palma Ceia Shoe Repair who thought it "might be a fun sideline". The business enlisted the endorsement of players from local pro sports teams touting the therapeutic qualities of the footwear. Many of the workers at the local casino have supported the line of sandals which are sold exclusively online and are fabricated when ordered from injection molds at the local plant. This limits inventory to raw materials but makes overtime an issue since production only takes place when orders come in. The sandals currently come in a single style and sell online for $129/pair. The business uses the cash method. The QuickBooks accounting system revealed the following for 2020. Rebecca did not take any salary or benefits from the LLC. Rebecca is confident that 2021 will bring success to the business, sales have increased every month since the business launched. Although the business started on its own website it recently came to agreements to sell on Amazon, Walmart.com and Etsy. $224,718 Sales Revenue Expenses: COGS Interest Expense Royalties Wages Payroll Taxes/Unemployment/Comp. Advertising Utilities Insurance Supplies Telecommunications Legal Fees to Set up the LLC $55,200 24,000 871 71,000 11,000 1,900 8,900 5,300 900 1,800 2,000 Rebecca counts on you to compute cost recovery for the enterprise (Rebecca does not want to take bonus or $179 cost recovery to avoid showing a loss to keep her banker happy) and find her the optimal tax treatment for her QBI deduction and overall tax liability now and in the future. 10 MOM'S CONDO On February 3, 2011, Rebecca purchased a condominium apartment which she leases to her mother and grandmother in Seattle. She rents this to them at the local fair market value, which is $1,750 per month. The apartment cost Rebecca $165,000. For the down payment she borrowed $20,000 (a second mortgage) from her mother at 9%, she makes monthly interest-only payments to her mother on the $20,000 sum. The second mortgage is due in a balloon payment in 2041 (if mom lives that long). She also obtained a 30-year amortizing, 6.5% first mortgage from a local bank paying 2 points (interest payment at loan origination) for the first mortgage loan on the remaining $145,000 of the purchase price. For depreciation purposes, the tax appraiser suggested that 20% of the value should be apportioned to the land, with 80% to the apartment. Rebecca used the MACRS general depreciation method. Rebecca has compiled a list of the year's cash payments associated with this investment: 1. Mortgage interest payments $ 10,009 2. Condominium association fees. 1,440 Property taxes... 3,800 4. Insurance (per month)... 55 5. Annual Parking garage fee. 284 6. Plane fare at Thanksgiving to check on tenants and the condition of the property (1st class on Alaska).... 945 7. Repairs to appliances. 295 Hotel bill for stay at Hyatt Regency while in Seattle... Meals while in WA @ Federal per diem 296 3. 8. 573 9. FAMILY LIFE Rebecca enjoys her morning rowing on the Hillsborough River. She arrives at sunup at the UT boat ramp where she stores her rig. Most mornings she completes at least an hour on the water. As a member of the Minaret Society, she makes an annual contribution to UT's Faculty of Accounting in support of the VITA Program ($2,500) and her boat storage fees are waived. The University charges non-contributors a fair market rate for boat storage. Deborah has struggled with her studies and a tutor at the local Kumon Center after school at a cost of $80/week (most school weeks) has provided helpful guidance which also doubles as after-school care for Deborah. Deborah also participated in the UT Mathletics summer camp during the year at a total cost of 11 OTHER INFORMATION Rebecca paid one of Deborah's aunts $3,500 cash to watch over Deborah while Rebecca was out of town on business trips. Rebecca estimates that medical/dental expenses will be $4,230 per member of her household this year of which $3,860 will be health insurance premiums for a high deductible plan. Rebecca will contribute $2,400 to a Health Savings Account at Palma Ceia Shoe this year. Deborah got braces in June and Rebecca paid $4,800 for the treatment (which is in addition to the other health expenses). In August, 2014 Rebecca lent her friend Louise $1,500 so that Louise could visit an ailing relative in Des Moines. Louise signed a promissory note (no interest) and has never paid Rebecca back. In March, 2020 Louise perished in a boating accident and her estate declared bankruptcy a few months later. Rebecca received nothing. Rebecca has considered moving from her rented three-bedroom Bayshore apartment but has yet to take the plunge into personal home ownership. Her monthly rent is $2,720 for the 1,360 square foot apartment, electric runs $240/month on average, water is included in the rent. She makes use of one bedroom exclusively for her work. Rebecca subscribes to Frontier FiOS service paying $185/month for a package including internet, television and telephone service. She needs the internet for her work and always has the City of Tampa cable channel on to monitor for shoe repair opportunities for the city government". She tells you she has always deducted the entire Frontier bill as a business expense. In June, 2020 Rebecca acquired a 6,600-pound behemoth Chevy Suburban SUV at a cost of $60,500 plus sales tax. She sold her aging Ford Focus to a UT student. The SUV is driven, according to her carefully kept records, 5,L3 miles of its 9,500 miles in 2020 in connection with her work (she does keep a daily log of her visits to clients and prospects that confirm her business use). Additionally, she drives a load of girl scouts (including Deborah) to Disney World once a month, took her aging aunt to Jacksonville for hip surgery, delivers meals once a month for the Meals-on-Wheels program, and helps her church collect aluminum cans by driving a full load to the collection center in Wiaumama each week. Rebecca wants the maximum deduction possible for her vehicle. On July 1, 2019 Rebecca purchased a 1/2 share in an Indian Rocks Beach Condo with her friend Sally Seashell for use as a second home. They plan to use the condo on alternating weekends for personal use. The unit cost $228,000. Each made a cash down payment of $24,000, the balance was financed by Foundering Federal Bank (the owner) at 4% interest, 2 points, 30-year amortization with a five-year balloon payment due on the balance. The total annual property taxes for 2020 are $5,160 which will be paid in full in November in cash by Rebecca and Sally when the tax bill arrives, the condo fee is $280/mo. which includes fire insurance and water. The happy weekenders closed the purchase July 1, 2019, they split all of the costs "down the middle" (so Rebecca and Sally each pay half of everything). In 2010, Deborah's great grandmother died leaving $5,000 to Deborah. That money was invested in a Fidelity Mutual Fund and has grown to over $19,000 in value. Deborah's dividends come in the form of capital gain distributions made by the Fund (all reinvested) which amounted to $4,000 in 2019 and are likely to be about the same in 2020. She also has a sizable savings account that paid interest held in trust for Deborah (through September the interest on the savings account at HancockWhitney Bank for Deborah was $285). Deborah does not want to file her own tax return but may be subject to the Kiddie tax so Deborah's tax due (if any) should be included with Rebecca's income tax payable in every filing status if it is allowable to include Deborah in Rebecca's return. Rebecca babysat for two different couples in the building, this year. Both couples paid her in cash. Rebecca's total babysitting income was $660 in 2020. Deborah participates in a multitude of organized activities after school. She is involved in volleyball, swimming and plays the tuba in the school band. Last year these various activities along with the scouts cost Rebecca about $8,000. In August Deborah began her studies at Tampa Preparatory School at a cost of $23,835 plus books. Rebecca is considering furthering her education, she has always been good with numbers and has thought about getting a college degree in accounting. Deborah showed off her independent side this summer. On an adventure with some of her marching band friends Deborah borrowed mom's new Suburban one evening and customized" the vehicle by adding a mailbox as a hood ornament. When local law enforcement arrived on the scene, they determined that about $5,000 damage had been done to the Suburban and a similar amount to the custom designed mailbox in front of Bayshore's Ritz Towers (the mailbox was embedded in the front end of the Suburban). In an effort to sweep this little incident under the rug Rebecca paid the police officer $1,000 cash to "look the other way this time". Rebecca paid a contractor $3,200 in cash to fix the mailbox and a similar amount (also in cash) to "Sammy's" body shop to repair the Suburban. Deborah's phone was taken away for three days and she had to eat the school's catered Panera Bread lunch (with no avocado) for a week as punishment. In the spring of 2019 Rebecca developed plantar fasciitis, a painful condition brought on by her heavy foot use. In searching for a solution Rebecca stumbled upon an ancient blueprint for therapeutic sandals used by the Seminole tribe. Rebecca visited with tribal leaders in early summer 2019 and struck a deal to license the blueprint agreeing to pay the tribe 50 cents for each pair of sandals sold. The license agreement has a duration of 50 years. Rebecca then formed Feel Good Feet, LLC - a single member LLC owned by Rebecca. She capitalized the LLC with $25,000 in cash on August 1, 2019 On August 11, 2019 Feel Good Feet, LLC signed a contract to acquire 2.5 acres of real property in the "301 Industrial Park" located just south of I-4 near the Florida State Fairgrounds. A few days later the LLC signed an agreement to have a contractor erect a 5,000 square foot metal building (with a brick front facing) on the site. The contractor will also complete a 2,200 square foot parking lot and landscaping. The land was $150,000 and the completed building was $75,000 with the drainage, landscaping and parking costing $10,000. Equipment for fabricating plastics, packaging and materials handling equipment cost $80,000. Office computers were $8,000 and office furniture was $12,000. The total loan (including $65,000 of operating capital cash) was $400,000 advanced by the Bank of Plant City at 6% interest, interest only payments on a five year "balloon" note. Rebecca personally guaranteed loan repayment when the entire transaction closed on January 2, 2020. The building was completed, equipment installed and the operation began its initial production of sandals on April 15, 2020. Rebecca plans to open her own retirement account this year. She overheard some CPAs partying at the Palma Ceia Country Club Cabbage Festival Ball discussing the merits of an SEP-IRA with unlimited contributions for self-employed individuals. She thinks she may qualify for an SEP-IRA which would allow her to sock away at least $12,000 in such an account. She will follow your advice on how to invest some money for her sunset years. 9 Feel Good Feet, LLC (The results of Feel Good Feet, LLC should be included in Rebecca's tax return using a Schedule to report the single member LLC's results) Rebecca started this business with the support of her boss at Palma Ceia Shoe Repair who thought it "might be a fun sideline". The business enlisted the endorsement of players from local pro sports teams touting the therapeutic qualities of the footwear. Many of the workers at the local casino have supported the line of sandals which are sold exclusively online and are fabricated when ordered from injection molds at the local plant. This limits inventory to raw materials but makes overtime an issue since production only takes place when orders come in. The sandals currently come in a single style and sell online for $129/pair. The business uses the cash method. The QuickBooks accounting system revealed the following for 2020. Rebecca did not take any salary or benefits from the LLC. Rebecca is confident that 2021 will bring success to the business, sales have increased every month since the business launched. Although the business started on its own website it recently came to agreements to sell on Amazon, Walmart.com and Etsy. $224,718 Sales Revenue Expenses: COGS Interest Expense Royalties Wages Payroll Taxes/Unemployment/Comp. Advertising Utilities Insurance Supplies Telecommunications Legal Fees to Set up the LLC $55,200 24,000 871 71,000 11,000 1,900 8,900 5,300 900 1,800 2,000 Rebecca counts on you to compute cost recovery for the enterprise (Rebecca does not want to take bonus or $179 cost recovery to avoid showing a loss to keep her banker happy) and find her the optimal tax treatment for her QBI deduction and overall tax liability now and in the future. 10 MOM'S CONDO On February 3, 2011, Rebecca purchased a condominium apartment which she leases to her mother and grandmother in Seattle. She rents this to them at the local fair market value, which is $1,750 per month. The apartment cost Rebecca $165,000. For the down payment she borrowed $20,000 (a second mortgage) from her mother at 9%, she makes monthly interest-only payments to her mother on the $20,000 sum. The second mortgage is due in a balloon payment in 2041 (if mom lives that long). She also obtained a 30-year amortizing, 6.5% first mortgage from a local bank paying 2 points (interest payment at loan origination) for the first mortgage loan on the remaining $145,000 of the purchase price. For depreciation purposes, the tax appraiser suggested that 20% of the value should be apportioned to the land, with 80% to the apartment. Rebecca used the MACRS general depreciation method. Rebecca has compiled a list of the year's cash payments associated with this investment: 1. Mortgage interest payments $ 10,009 2. Condominium association fees. 1,440 Property taxes... 3,800 4. Insurance (per month)... 55 5. Annual Parking garage fee. 284 6. Plane fare at Thanksgiving to check on tenants and the condition of the property (1st class on Alaska).... 945 7. Repairs to appliances. 295 Hotel bill for stay at Hyatt Regency while in Seattle... Meals while in WA @ Federal per diem 296 3. 8. 573 9. FAMILY LIFE Rebecca enjoys her morning rowing on the Hillsborough River. She arrives at sunup at the UT boat ramp where she stores her rig. Most mornings she completes at least an hour on the water. As a member of the Minaret Society, she makes an annual contribution to UT's Faculty of Accounting in support of the VITA Program ($2,500) and her boat storage fees are waived. The University charges non-contributors a fair market rate for boat storage. Deborah has struggled with her studies and a tutor at the local Kumon Center after school at a cost of $80/week (most school weeks) has provided helpful guidance which also doubles as after-school care for Deborah. Deborah also participated in the UT Mathletics summer camp during the year at a total cost of 11