MEMORANDUM
In this case, Kate Millette has a catering business, and she also has a food blog business with her sister Didi Millette Kennedy. These two businesses bring many tax issues, such as small business, partnership, hobby, home office, etc.
SUMMARY OF THE FACTS
1. Sisters Kate and Didi graduated from cooking school, and they want to do a business relating food together.
2. Both of sisters Kate and Didi are interested in food and photography.
3. Kate stared a catering business Katering, LLC alone.
4. Kate and Didi have a food blog business, Sweetness and Spice.
5. Kate work at home-office. Her twenty-five percent of the time is working for the blog and remaining seventy five percent of the time is for Katering.
6. Kate’s filing status…show more content… The blog is engaged in for-profit made at the partnership level.
In the case WATERMAN v. U.S., 113 AFTR 2d 2014-1169, Code Sec(s) 6227; 6229; 6230; 6231; 6511; 7422, (DC OH), 03/04/2014, the court discuses about the partnerships. The Court determined Midwest Intermediaries whether a partnership is a small partnership and whether the same share rule is satisfied.
For small partnership should meet (1)it had 10 or fewer partners, and (2) each partner's share of each partnership item is the same as other partner’s (RIA 26 U.S.C. § 6231(a)(1)(B)(ii) ).
For purposes of the same share rule, partnership items include: (1) items of income, revenue, expenses, or credit of the partnership; (2) non-deductible taxable income, such as charitable contributions; (3) some tax preference items; (4) a partnership exempt income (Reg§ 301.6231(a)(3)-1(a)(1)(i)).
In the case Sweetness and Spice, even though Katy and Didi have the same share of gain as each other, does not mean each partner's share of each partnership item. Therefore, their blog business does not qualify the small partnership. However, Sweetness and Spice it is a TEFRA partnership.
II. The blog is a…show more content… Kate and Didi should consider forming Sweetness and Spice as a limited liability partnership company rather than a general partnership to address potential liability issues.
In a general partnership, all the partner share equally in profits and liabilities for the company, and do not need formal agreement to approve. Partners have freedom on running their own business, which do not require for business structure or governance. Each general partner receives profits and losses as personal income and the company itself is not taxed on earnings.
Limited liability can protect partners’ personal assets and also provide the same tax advantages as a general partnership. Partners only loss limited personal liability for business debts. Therefore, even if a former client, but each partner in sue a company the company do not suffer their personal assets at risk.
II. Kate and Didi should promote the blog through advertising and other ways to help their blog to be classified as a trade or business rather than a hobby. Moreover, they can write a formal business plan to present that their business is formal. In addition, they should record the time spent on the blog and do business activities with the intention to earn a
