Ask Question, Ask an Expert

+61-413 786 465

info@mywordsolution.com

Ask Taxation Expert

Jack and Jill (two unrelated individuals who are citizens of the US) found an interesting script for a movie in 2010, and they decided to produce it in Nevada. It was a "low budget" film, so they estimated production cost at $250,000. Jack has experience as a movie producer, but no experience in distribution, and he does not have any capital. Jill has capital and also has experience distributing movies. While both have had experience in these activities, neither one has ever had or been a partner in any business, so no accounting methods have been established for their movie making activities. It is now June 2011, and neither Jack nor Jill has yet filed tax returns for 2010 or 2011.

They signed a contract with each other in 2010 under which Jill lent Jack $250,000 to produce the movie. The contract stated that when Jack provided the movie, Jill would forgive the loan and also pay Jack $50,000. The contract also stated that Jill would pay to Jack 30% of any amount that Jill received for the movie in excess of $500,000. The movie was made in 2010 and 2011. The costs incurred by Jack to make the movie were: $10,000 paid in 2010 for the script, $50,000 paid each year to actors and crew, and $70,000 paid each year for props, etc. Then, following the terms of the contract, in 2011 Jack provided the completed movie which met all of the required specifications. Jill then forgave the $250,000 loan and also paid Jack $50,000. In that same year Jill sold the move to a company which distributed DVDs and received total payment of $550,000. Accordingly, she paid Jack $15,000 in 2011 representing 30% of the amount in excess of $500,000.

Jack and Jill each had substantial income from other activities, so each of them is concerned with tax consequences. They have heard about the Domestic Production Activities Deduction and wonder if their movie making qualifies.

How much may be deducted, when it is allowed, who could get the deduction.

Taxation, Accounting

  • Category:- Taxation
  • Reference No.:- M9128

Have any Question? 


Related Questions in Taxation

Assignment1 section 5 of the income tax act 1967 describes

Assignment 1. Section 5 of the Income Tax Act 1967 describes the ascertainment of chargeable income. Describe the steps that are used to ascertain the chargeable income of a taxpayer. 2. Identify and briefly explain any ...

Question 1you are working as a tax consultant in mayfield

Question 1 You are working as a tax consultant in Mayfield, NSW. Your client is an investor and antique collector. You have ascertained that she is not carrying on a business. Your client provides the following informati ...

Taxation theory practice amp law assignment -question 1 -

Taxation Theory, Practice & Law Assignment - Question 1 - You are working as a tax consultant in Mayfield, NSW. Your client is an investor and antique collector. You have ascertained that she is not carrying on a busines ...

Taxation law amp practice assignment -part 1 -on 1 july

Taxation Law & Practice Assignment - Part 1 - On 1 July 2016 Frank Lloyd commenced business as an architect. He operated as a sole proprietor from a converted garage at the rear of his residence. Much of his work consist ...

Understanding tax returns assessment - prepare tax returns

Understanding Tax Returns Assessment - Prepare tax returns for individuals To complete these activities you are required to: a) Conduct independent research and analysis of relevant Tax Law. b) Access the most up to date ...

Taxation theory practice amp law assignment -question 1 -

Taxation Theory, Practice & Law Assignment - Question 1 - You are working as a tax consultant in Mayfield, NSW. Your client is an investor and antique collector. You have ascertained that she is not carrying on a busines ...

Tax policy is defined as which taxes the government chooses

Tax policy is defined as which taxes the government chooses to levy, in what amounts and on whom. Elements of this decision are based on both the amount needed to pay for expenditures as well as the effect taxes can have ...

Tax law question - mary was born and raised in central new

TAX LAW QUESTION - Mary was born and raised in central New South Wales. She moved to Sydney to attend University in 2010, and graduated with a Bachelor of Commerce from the University of Sydney in December 2013. In 2009, ...

Questionan entity which is gst registered or which needs to

Question An entity which is GST registered (or which needs to be registered) needs to charge GST on its taxable supplies (s.9.70, A New Tax System (Goods and Services Tax) Act 1999 ("GSTA")). While some transactions may ...

Tax policy is defined as which taxes the government chooses

Tax policy is defined as which taxes the government chooses to levy, in what amounts and on whom. Elements of this decision are based on both the amount needed to pay for expenditures as well as the effect taxes can have ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As