Mrs. Betty’s dream is to open a restaurant to share all of her mother’s delicious recipes. In early 2018, a friend of Mrs. Betty was selling their food truck, and Mrs. Betty jumped at the opportunity to start her business. On December 1, 2018, Mrs. Betty began operations serving a few family recipes out of the food truck. Mrs. Betty decided not to incorporate her business until she decides whether this will be a profitable venture. Therefore, Mrs. Betty reported the December 2018 income from the food truck business in her 2018 personal tax return. It is May 2020 and since 2019 is the first full year of operations, Mrs. Betty has come to you, a CPA, to help prepare her 2019 personal tax return. She has calculated her 2019 income from her business as $120,000 and deducted the following amounts in computing that amount:
Amortization expense: $20,000
Legal fees incurred relating to general operational matters: $5,000
Donations made to registered charities: $500
Interest paid on late filing 2018 GST/HST return: $120
Family vacation costs paid: $2,500
Gym membership fee paid for Mrs. Betty: $600
Salary paid to son working part-time in the business (summer only): $5,000
Accounting fees incurred for bookkeeping: $1,200
Interest paid on loan used to purchase food truck: $4,500
REQUIRED:
Part A
Calculate Mrs. Betty’s minimum 2019 taxable income, providing a brief explanation or section reference for each adjustment. For each item that does not require an adjustment, please provide a brief explanation or section reference. For items that impact other parts of her 2019 tax return (i.e. not part of taxable income), explain what the item specifically affects and a section reference.
Part B
Assume that Mrs. Betty’s total taxes payable for 2019 is $24,000. She estimates that in 2020, her business will take off and her tax liability will be $42,000. In 2018, Mrs. Betty paid income taxes of $15,000. What are Mrs. Betty’s minimum 2020 tax installments and when are they due? Show all calculations used to determine all possible alternatives to calculate installment payments and explain why you chose the method you did.
Part C
Mr. Betty works for an engineering company in Waterloo. He files his own tax return which always makes Mrs. Betty nervous. Explain to Mrs. Betty when her husband’s 2019 tax return is due.
