Question: Complete a tax return for a sole proprietor based on the provided scenario. Further, you will prepare a memorandum for Larry the Landscaper providing professional recommendations in the informational areas indicated.

All necessary PDF fill-in forms are available from the Internal Revenue Service.

Information on Larry the Landscaper:

Larry the Landscaper

Larry's Luxury Landscaping Service

13579 Grassy Knoll

Return Items:

Larry earned $325,000 through his landscaping service.

Business Expenses on Larry's Return:

$48,000 in wages paid to others

$3,200 paid in employment taxes

$2,400 paid in advertising expenses

$12,000 paid in equipment repair and maintenance

$6,500 paid in fuel expenses

Larry's dedicated business line to home office costs $995 per year

15% of Larry's home is dedicated office space

Larry paid $24,000 in home interest expense

Larry paid $4,800 in utilities for his home

Larry paid $3,600 in property taxes

Larry pays $1,950 for home insurance per year

Need to Know:

Larry's lawn care equipment is in great working condition, but depreciation is not an issue as all items have been fully depreciated at this point.

Larry pays $15,000 a year in health insurance premiums for full family coverage.

Larry currently has no retirement plan aside from Social Security.

Larry will be purchasing new office equipment this year as his old computer, printer, and fax are outdated. Larry does not know he can depreciate home office items.

Larry's wife and oldest son often work for the landscaping service, but do not take a wage; they are just “helping dad out.”

Larry is considering disposing of his current equipment and upgrading with newer, more efficient equipment. Larry is unsure, however, of any tax-related consequences or benefits resulting from this decision.

Guidelines

DO NOT make additional assumptions relative to filling out the tax return. Remember, this return is not meant to be extensive, but to provide the foundational information necessary as the advisor to make recommendations to Larry on tax minimization and planning strategies. How can Larry avoid recognition of some income for the current and defer this recognition until a later time in life, hopefully when income is less and Larry is in a lower tax bracket? How can Larry defer tax liability now and better plan for providing for himself in retirement years? What tax deductions/benefits is Larry not currently taking advantage of?