1. If a taxpayer has gains and losses from an activity, are they better off...
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Accounting
1. If a taxpayer has gains and losses from an activity, are they better off classifying the activity as a hobby or as a business? Explain why.
Mr. D works full-time as a systems analyst for a consulting firm. In addition, he sells plants that he raises himself in a greenhouse attached to his residence. During the past 5 years, the results from raising and selling the plants have been as follows: Year Net Profit (Loss) from Scenario 1:
Scenario 1
Year 1
(2,000)
Year 2
(1,200)
Year 3
1,000
Year 4
2,500
Total Years 1-4
300
Year 5
(500)
2. Please create a scenario (Scenario 2) where the cumulative profits in years 1-4 are still $300 but the taxpayer would be in a better position regarding year 5 losses.
Scenario 1
Scenario 2
Year 1
(2,000)
Year 2
(1,200)
Year 3
1,000
Year 4
2,500
Total Years 1-4
300
300
Year 5
(500)
(500)
3. Comment on your answer to 2 above. Why is Scenario 2 better for the taxpayer? You may also show your erudition by citing, referencing, and attaching additional sources
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