4 or 5 sentences per answer of each question Edna Taylor starts her fly fishing business Edna Taylor recently completed her degree in accounting having graduated from George Mason University. After taking her tax class, she decided to start a business offering guiding and instruction for fly fishing. In addition, she also plans to open a retail fly fishing store in Fairfax, Virginia where she also plans to locate her personal office at the store. The businesses, including the fly fishing store will be conducted as a sole proprietorship with the name of Ednas Fly Fishing Enterprises. As her accountant, she has come to you for some tax advice before making decisions on how to begin her business. She asks the following questions:Edna wants to know if the income and expenses for the business is required to be reported on a separate business tax return or as part of her personal tax return. What federal income tax return and accompanying schedule should be used to report the business income and expenses? Before starting her business, Edna hired Bob Perez, a marketing consultant, to determine the best location to locate her business. Bob provided a study on the population income levels, location of good fishing streams and rivers, and fly fishing store competition in various locations in the Washington DC, Virginia and Maryland areas. His report concluded that being located in Fairfax County, Virginia would be the best overall business location. Edna paid Bob $10,000 for his services. How is the $10,000 treated on the Ednas businesss tax return? Edna owns a Land Rover. If she only drives to the office at the fly shop and back to her home, will she be able to deduct the costs of the car such as depreciation, gas and oil, car repairs and maintenance, insurance, etc.? If Edna also uses the Land Rover to take clients to the various rivers and streams for guiding and instruction, would she be able to claim a deduction for automobile expenses for these costs? Dr. Joe, a dentist, has asked to trade services. Dr. Joe will clean Ednas teeth twice and year if Edna will take Dr. Joe fly fishing for a day each March. Would either of them have to report any income from this arrangement? Edna typically charges $450 per day for a guided fly fishing trip. Edna donates a guided fly fishing trip to be auctioned at her church bazar, the proceeds to go to the church. If Edna provides a day of guided fishing to the winner of the silent auction, can Edna deduct $450 as a charitable contribution on her tax return? Edna provides clients with all of the equipment they will need for a fly fishing trip. During one of her guided trips, her client developed a leak in the waders she provided. The manufacturer for the waders charged her $30 to repair the leaky waders. Can she deduct the $30 or must she capitalize the amount and a recover the cost using MACRS depreciation? The fly fishing store sells flies for $2.50 each which it purchases from a manufacturer for $.50 each. As part of her guiding service, she provides flies without any additional fee other than the $450 per day charge. On a trip with Imran, one of her best clients, he loses 8 flies that got caught in trees. Can Edna deduct for the flies: $20, $4 or Nothing because the flies were part of the $450 guiding fee? Edna purchases a number of fly rods that she lets clients use on guided fly fishing trips with her. After 3 years, she typically sells them. A client wanted to purchase the fly rod he used during one of the trips. Edna originally purchased the fly rod two years ago for $600, has claimed $200 of cost recovery through depreciation, and sells it to the client for $300. How is the loss treated on this sale assuming there are no other gains or losses on equipment for the year? The fly rod manufacturer has a special promotion offer where if Edna will exchange 3 of her used fly rods for 3 new fly rods to be used in her guiding service. The old fly rods are worth $300 each, were purchased 2 years ago, and have an adjusted tax basis of $400. After the special promotion offer the cost of the new fly roads are $500 each and Edna pays the manufacturer and additional $600 plus delivered the three old fly rods. Is the $100 loss on each of the fly rods a: Ordinary loss Capital loss Not currently deductible because it is deferred Never deductible because the loss is from the sale of a personal use asset. ANSWER Question 1 It is credible to understand that a person income tax returns are way different from personal tax returns. Therefore this directly translates into Ednas case, her personal income and expenses will automatically lie on her personal tax remmission. Her bussiness tax returns will be separate since it is a different identity. Conclusively, Ednas tax remission are virtually independent from the bussiness remissions. This is due to the fact that Edna and her bussiness are two different identities. Question 2 In this particular question, there is need to understand that Edna hired Bob Pirez to do carry out a good bussiness location. Bearing in mind that Bob Perez is a marketing consultant, Edna pays him for his services. Bearing in mind Edna paid Bob Pirez $10,000 dollars, this will automatically fall as an expense in Ednas tax returns. The payment to Bob by Edna falls under her expenses since the bussiness she intennded to start had not been established. Question 3 In this particular scenario Ednas car is not used for bussiness purposes at all. She uses the car for personal matters and not bussiness commitments. This shows that there is no way that she can deduct the cars expenses like insurance, gas and other expenses since the car does not have any positive impact on the bussiness. This practically shows that all burdens associated with the car are the responsibilkity of Edna and not the bussiness. The bottom line is, Ednah cannot deduct the cars expenses from the bussiness returns.Question 4 In this case where Edna uses the car to trnasport clients for various activities that are associated with the bussiness, she has the responsibility to deduct all the costs associated with car from the bussiness income. The reason I am saying this is because, when an asset is like a car is used for bussiness purposes, it becomes a liability to the bussiness and all its maintance costss must come from the bussiness. In this case where Edna is using the car for bussiness purposes she has the right to deduct all the costs associated with it from the bussiness returns. Question 5 The arrangement between Dr. Joe and Edna is not formal at all. Both of them have just come to a mutual agreement which is more of an exchange of favours other than a bussiness deal. Since the arragement between them two is informal, both of them do not to report this in their tax returns. The main reason I am saying this is because there is no expense which in incured by either of them.