Memo To: John & Jane Smith From: Zachary R. Munger Date: [ 5/27/2012 ] Re: Memo summarizing various tax issues 1. John Smith's tax issues: Issue a) How is the $300,000 treated for purposes of federal tax income? Refer to IRS Section 104 (Compensation for Injuries or Sickness (Also Section 105- Amounts Received Under Accident and Health Plans)). John would have to include everything he received for the services provided as gross income. This would be in addition to his wages, salaries, commissions and other fees that he normally earns as an attorney.
As a C-corporation the business, not the owner, would be held liable for any financial damages. Any accidents involving employees or customers would be the responsibility of the corporation to settle. Financially speaking incorporating is the best option because as a sole proprietorship the owner is currently paying a much higher tax rate versus the corporate tax rate. With the tax code being different for corporations there is better profit retention and security. The client also mentioned the issue of partnership and the selling of stock in order to expand the company.
What was Brady Brothers cash basis income? Cash basis income: $6,000 (cash received) - $5,000 (cash paid) = Answer: $1,000 Question 3: What was Brady Brothers accrual basis income? Accrual basis income: $12,000 (revenue earned) - $8,000 (expenses incurred) = Answer: $4,000 Question 4: Anderson Company’s balance sheet at the end of the year revealed the following information: Clients owe Anderson Company $35,300 for completed projects. Anderson Company owns office equipment totaling $95,500. Anderson Company owns $5,000 of material used on various client projects.
Problem 4-25 Billy Dent, as the owner of an apartment building, receives and makes the following payments during 2011: How much rental income must Billy Dent include on his 2011 income tax return? Answer: Billy Dent must include on his 2011 income tax return $9,000.00 Problem 4-32 Arnold and Barbara Cane were divorced in June 2011. Pursuant to the divorce decree, Arnold is obliged to perform as follows: * A. Transfer title of their personal home to Barbara. They purchased the house in 1998 and their basis today is $400,000.
Most people choose a credit union because they make you a top priority, low or no minimum balance requirements, secure funds, and bonus checks. They don’t choose banks mostly because banks are for profit, generally shareholder owned companies delivering a wide array of financial services to the public at large. Banks are regulated by either the federal
Law and Analysis The taxpayer relief act of 1997 exempted from taxation the profits on the sale of a personal residence of up to $500,000 for married couples filing jointly and $250,000 for singles. This exemption applies to residences the taxpayer(s) lived in for at least two years over the last five. Taxpayers can only claim the exemption once every two years Under § 1.121-1 Exclusion of gain from sale of principle residence of the Internal Revenue Code, the sale of the home of Mr. Junkiewicz and his wife in 2013 is not a taxable transaction as
· Liability-A C Corporation has limited liability in that it is seen as a separate entity from the owners, which in turn protects their personal assets from being taken to pay for the company’s debt or liability losses. As with the other business entities, insurance can be purchased to shield the assets from being taken due to a liability loss. · Income taxes-Corporations are taxed twice. They are first taxed on the profits made by the corporation itself then the profits to the shareholders, also known as dividends, are taxed. · Longevity-The dissolution of a C-Corporation can occur because of a shareholder becoming disabled or dying, the failing profits of the company or because they can not agree on the direction or handling of the company.
Then we have to subtract 4 exemptions from $28050. Four exemptions are equal to $14800(each exemption is $3700* 4), so $28050-$14800=$13250. Now we can look up $13250 in the 2011 tax table for married filing jointly. 3-32. Marie’s taxable income for 2011 is follows.
State laws must also be taken into account and defined as to how income is to be allocated between the couple. Section 66 other IRC sets forth a specific rule for treatment of community income where the spouses live apart. IRS Publication 501, Exemptions, Standard Deduction, and Filing Information for 2011, under Filing Status, explains how to determine the filing status before being able to determine filing requirements, standard deduction and correct tax. Filing status also determines whether a taxpayer is eligible to claim certain other deductions and credits. Filing married filing separately is permissible and can be used if each married taxpayer wants to be responsible only for their own tax or if it results in less tax than filing a joint return.
------------------------------------------------- Group Discussion Board 1 Question 1: Tax preparers often have a difference of opinion with their clients as to how some transactions should be treated on a tax return. If a client of yours does not wish to report information on their tax return that you feel should be reported, how would you handle the situation? As an accountant, tax professional, and Christian there are professional and personal obligations for honesty, integrity, and due diligence. You have an obligation not only to yourself but to all those around you and to the profession itself. This situation brings into question two areas of life that we all may face.