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Tracy Morgan is self-employed as a professional golf

Tracy Morgan is self-employed as a professional golf instructor. She uses the cash method of accounting and her SS# is 465-34-3389. Her principal business code is 812990. Tracy’s business is located at 41500 Gardenbrook Rd, in Novi, MI 48375.

During 2020, Tracy had the following income and expenses:

Fees from golf lessons $40,125
Expenses:
Car Mileage (5,234 business miles) 3,036
Business Liability Insurance 475
Office Expense 660
Rent on storage space 2,700
City business license 250
Travel expense 3,000
Meals (deductible portion) 985
Utilities 1,015
Miscellaneous Expense 500
Refund given to student 200
Advertising 800

Tracy is a good friend of yours who knows you have just learned about all sorts of interesting tax stuff.

She would like your help with the following:

  1. Tracy would like you to fill out Schedule C for her business using the facts described above. Describe any questions you would ask Tracy and any assumptions you made because she was unavailable.
  2. Tracy would like to know if she might be able to apply the home office rules to get some additional deductions. What questions would you ask her?
  3. If Tracy received payment in the form of “free rounds of golf” – should she report it as income on her Schedule C? Would not doing so be considered tax avoidance or tax evasion?
  4. What would you advise Tracy as far as recordkeeping for her business?
    1. Tracy has one client who insists on paying her in cash – Is there anything you should be cautioning Tracy on if she takes cash from her clients?
    2. If Tracy had another Monday – Friday 40 hour a week job and gave golf lessons on the side, would this change your approach? What questions would you need to ask Tracy?
    3. Tracy is thinking about hiring a friend of hers who loves golf and potentially could help her grow her business. Tracy wants to know if she should give her friend a W-2 (because she’s an employee) or a Form 1099 (because she’s an independent contractor)? What would you tell her about how to determine if her friend is an employee or independent contractor?
    4. Is Tracy’s friend (from #7 above) part of the “gig economy” if she is treated as an independent contractor? Did the “gig economy” open up opportunities that were not previously available?

     

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