Tax Case
To Do:
1. Enter into the google search projects.propublica.org/nonprofits. You may get several hits. Look for the one that says Nonprofit Explorer Propublica. It allows you to search Form 990s filed by tax exempt organizations. Identify several organizations that you can research and provide me with the one that provides the most interesting information. You should be able to research several years in the past in case there is not a recently filed Form 990. Make a copy of the one you selected, upload it to me, and in a few words tell me about the organization, its tax exempt purpose, whether or not the salaries of the highly paid are disclosed, and why you selected this organization.
A. Case Research
This research focused on identifying sales and income tax rates in Tennessee. Please read the case below, that I created, and provide a well written response to the questions posed by the taxpayer.
About the Taxpayer
Ellen is a single taxpayer who has grown bored with her job although she earns $80,000 in 2019. She lives in Tennessee . She cannot afford to quit for financial reasons due to student loans, car payments, helping her parents, etc. When she leaves work she has free time on her hands, enough free time to make additional money. She learned that you are in a tax class in the doing MBA program and wanted your tax advice about starting a business.
About her proposed business
She wants to make a dry mix for cookies using her grandma’s recipe. She plans to use her favorite recipes from grandma but plans to develop several new recipes on her own. She plans to make the dry mix in her apartment but will soon move into a house which she will call home. She wants to create and e-commerce business and sell on-line to any customer who would buy her mixes. Her aunt, who lives in North Carolina, will also help her make the mixes. The aunt plans to make the mixes in her home in Charlotte.
Questions
Be sure that your answers are not lifted from the book. Instead, respond to her in common words as if you are talking to a friend.
1. Should she form a hobby or a business? She wants to know the tax advantages and disadvantages of each and your conclusion. (Note: See chapter 6)
2. If she forms a business, what form should the business take? (Note: See chapter 15 at 15-1) Think about number of owners, ease of formation, tax implication.
3. If she chooses a corporate form such as a LLC or C-corp, how does she register her business? Ie who must she contact; which forms must she prepare, what will she receive in return, how long will it take, etc?
4. Must the aunt form a separate business to help Helen? Additional thoughts: The aunt is an active member of her local religious organization and would like to use some of the mixes as a fund raiser for the organization. Pros and cons?
5. Income tax: what are the federal income tax implications to Helen? What forms must she prepare, what is her tax rate, etc. You may have to create an assumption or projections about the net income from the business. From your own experience determine the average sales price of a box of mix, the cost of the ingredients, other costs such as shipping, setting up on-line advertisement, etc. and project a reasonable profit for her if she works about 15 hours per week on the project. It’s up to you. Complete the appropriate tax form for the business.
6. What are the multistate income tax implications if she sells in her home state, Illinois, North Carolina, California, New York, Florida, Texas and at least four other states. Please post your states to the Discussion board so that there is no duplication. You must look up the rules for apportionment and allocation. Cite authority. The best way to present this info might be in a form of a well developed chart.
7. For these same states in which she will sell, will she have to collect and pay sales tax on her sales? What is the rate? Wil she have to pay sales taxes on her purchase of raw material? Cite authority
8. Does the state in which she is located allow her and her aunt to operate a business in their homes? What must be done if they cannot make the mixes in their home location?
9. Assume that Helen is successful in the business but is getting physically fatigue from all the work. What would you recommend?