Category: Writing

Three years ago, Paul Wilde exercised all his stock options
in the start up company he helped establish and wa lked away with over $100
million. Since that time, he has spent all his energy, time, and effort in
managing his portfolio. His investment philosophy is one of steady, careful
investment in a well-balanced portfo lio. Thus, although each year he engages
in several sales and purchases, he genera lly buys and holds the securities for
both the dividends and the growth potential. Consequently, most of the stock
sales he makes are of securities he has held for over one year. Because his
investment activities have grown so large, this year he rented a suite of
offices and hired two investment advisors and five secretaries to help him. He
also purchased several new computers and some new office furniture for the
office. Paul has now come to you for some tax help. Specifically, he would like
to know if his activities are considered a business or an investment activity.
In your explanation, please include whether the expenses incurred in the
activity are deductions for or from AGL A partial list of research sources is
as follows:
• Higgins v. CIR, 25 AITR 1160, 41-1 USTC §9233 (USSC, 1941)
• Estate of Louis Yaeger, Deceased, Judith Winters, Ralph
Meisels, Abraham). Weber and the Bank of New York, 889 F2d 29, 89-2 USTC
‘l(9633 (CA-2)
• Frederick Mayer and Jan Perry Mayer, 67 TCM 2949 (1994)
• Rudolph W. and Abbie A. Steffler, 69 TCM 2940 (1995)
• Sec. 179

Busin ess-Related Expenses. Mike, a self-employed
consultant, incurs the following business-related expenses in 2019:
Mike earned $130,000 of gross income from his consulting
business and had $12,000 of interest and dividend income in 2019 before any of
the above expenses are deducted. He has $20,000 of itemized deductions. Mike is
married and files a joint return with his wife, Ann, who has no income.
a. What is the amount of Mike’s deduction for
business-related expenses for 2019?
b. What is Mike and Ann’s AGI and taxable income in 2019,
assuming he is married and files a joint return, and ignoring the
self-employment tax?

David is an independent contractor who has been in the
consulting business for several years. David has applied and been accepted into
a prestigious MBA program. The program is two years in duration. David has
decided to suspend his consulting activities to complete the MBA degree. David
plans to resume his consulting business in two years. David wants to deduct his
education expenses. What are the relevant tax issues in this case?

1. Discuss the major features of a Coverdell Education
Savings Account (CESA)
2. The owner of an unincorporated small business is
considering whether to establish a simplified employee pension (SEP) plan for
its employees.
a. What nonrax factors might make a SEP attrac – tive as an
alternative to establishing a qualified pension or profit -sharing plan?
b. ls the owner of the small business eligible to make
contributions on his or her behalf ro the SEP?

Sally, who is single and age 40, made deductible IRA
contributions in several early years, bur has nor been eligible to make
deductible IRA contributions for the last 5 years because she is covered under
her employer’s plan. Her AGI is $100,000. She is interested in making IRA
contributions in the current year. What advice would you give her?

Explain how distributions from a qua lified pension plan,
which are made in the form of annuity payments, are reported by an employee
under the following circumstances : a. No employee contributions are made to
the plan. b. The pension plan provides for matching employee contr ibutions.

Babson Corporation is proposing the creation of a qua lified
profit -sharing plan for its employees. The proposed plan provides for vesting
of employer contributions after 20 years because the company wants to
discourage employee turn – over and does not feel that short -term employees
should qualify for benefits. Will this plan qualify? Why or why not?