1. Marsellus is self-employed. He is supplied by and part owner of a large nursery and greenhouse which has retail sales, but his primary interest is his landscape design business. His specialty is designing and supervising the landscaping for large commercial projects in the Los Angeles area, along with some private residences. As he has a lot of contacts and referrals, his business, Pulp Patches, is proving to be extremely successful. During the CTY 2019, the business (a single-member LLC using the cash basis and calendar year) had the following receipts:

Projects completed during---
2018	$65,000
2019 (CTY)	78,000
2020 prepayment	55,000

The $55,000 prepayment occurred because the client planned to be in Amsterdam during most of next year when the project would be started and completed. Not listed above is the $15,000 billed to Butch Coolidge for a landscape design plan prepared early in the CTY 2019. Butch has recently been convicted and jailed for throwing a boxing match. Marsellus feels certain that he will not be paid for his services.

2. Besides a home office and the S-Class Mercedes, Marsellus incurred the following expenses during the CTY 2019 in connection with his landscaping business:

Travel to landscaping sites in Northern CA---
Lodging	$15,400
Meals	10,300
Incidentals	550
Office supplies	2,450
Drafting supplies	3,200

3. Marsellus’s armored S-Class Mercedes, which he uses exclusively in his landscaping business, was purchased on July 1, 2014 for $150,000. No trade-in was involved, and the vehicle is classified as a passenger car (not a truck or van) for income tax purposes. Marsellus did not claim any Section 179 or bonus depreciation. He does, however, use the actual operating cost method for claiming car expenses. Under this method, he calculates depreciation using 200% declining-balance with a half-year convention, subject to limitations for automobiles. The expenses for operating the Mercedes during the CTY appear below:

Gasoline	$2,450
Oil changes and lubrication	400
Auto insurance	3,200
Repairs	1,100

The Mercedes was driven a total of 10,000 business miles during the CTY (mileage was evenly distributed throughout the year).

4. This year, Marsellus decided to run his landscaping business from home, so on January 1 of the CTY he set aside 1,000 square feet of living space in his residence to serve as his office (total living space area is 5,000 square feet). As of January 1 of the CTY, the house has an adjusted basis of $650,000 (of which $50,000 is attributable to the land) – the fair market value of the property is in excess of this amount. Relevant information regarding the entire residence for the CTY appears below:

Utilities	$8,600
Homeowner’s insurance	2,100
Repairs and maintenance	800
Cleaning and trash pick-up services for office area only	1,200
Bamboo flooring for office area only (repair)	1,800

5. In connection with his move of the business to his home, Marsellus sold a few business assets. Marsellus has no prior §1231 losses or carryovers.

Asset	Date Acquired	Date Sold	Acquisition Price	Accumulated Depreciation	Selling Price
Land	04/14/10	6/4/CY	$50,000	$ 0-	$ 260,000
Building	04/14/10	6/4/CY	200,000	44,662*	500,000
Greenhouse	04/14/10	6/4/CY	44,000	39,675*	30,000

* Not including current year depreciation. 

6. Rhames Nursery is the supplier for Marsellus’s landscaping business. Marsellus has a 40% ownership stake in the business, which is organized as an S-corp. He received a K-1 from Rhames Nursery for $24,000, his portion of the earnings for the CTY.
7. Mia is filing jointly with her husband Marsellus’s using the cash basis. How do you treat these activities on Mia’s 2019 tax return and what tax forms should be used?

Answer rating: 100% (QA)

Mia should report the activities of Marselluss landscaping business on Schedule C Form 1040 Profit or Loss from Business The activities related to Rha... View the full answer