LO.6, 7 Greg Horne (431 Maple Avenue, Cincinnati, OH 45229), a syndicated radio talk show host, earns an annual salary of $400,000. He works approximately 30 hours per week in this job, which leaves him time to participate in several businesses newly acquired in 2010. He owns a movie theater and a drugstore in Cincinnati, a movie theater and a drugstore in Indianapolis, and a drugstore in Louisville. A preliminary analysis on December 1, 2010, shows the following projected income and losses and time spent for these various businesses.

Income (Loss)

Cincinnati movie theater (95 hours) $ 56,000 Cincinnati drugstore (140 hours) (89,000)

Indianapolis movie theater (90 hours) 34,000 Indianapolis drugstore (170 hours) (41,000)

Louisville drugstore (180 hours) (15,000)

Greg has full-time employees in each of the five businesses.Write a letter to Greg suggesting a grouping method and other strategies that will provide the greatest tax advantage. As Greg is not knowledgeable about tax law, provide a nontechnical explanation.