Week 3 Questions: 7: Active income is derived from the main course of business or trade; the taxpayer’s full time job or main means of generating income. Passive income is income derived from passive activities, activities that the taxpayer does not devote sufficient time for to be considered as part of main trade and business activities. Portfolio income comes from dividends, annuities, and other investments not part of the main course of business activities. 13. Material participation is a concept used by the law to determine what qualifies as a passive activity.
This would be important for accounts receivable - money that is owed by a customer for products/services. Representing a company in small claims court requires one to be familiar with the law and how it relates to accounting practices. In the Mack v. Edenwold Fertilizer Services Ltd. case, if Mack had a knowledgeable accountant that was familiar with the law, he may have been advised not to sue as the illegality of the situation would have resulted in a loss. In turn, this advise would have saved Mack both time and
Specifically he would like to deduct it other than as a miscellaneous itemized deduction, which would give him no tax benefit due to the Alternative Minimum Tax. Discussion and conclusion: Since Joshua’s damage award is considered part of his gross income, the concern is whether he can deduct the contingency- based attorneys fees. If the damage incurred in connection with a trade or business, than he would be able to deduct this expense on schedule C, assuming he is self-employed. Or he can deduct it as a miscellaneous itemized deduction; due to the fact that he is subject to the
Assessment B: Understanding Ways to Save on Federal Taxes Some ways to save money on your federal income tax Some ways to save on your federal income tax is to get a house because you can deduct the interest you paid on your mortgage or home equity loan. You can deduct your expenses to save on your taxes. Do other things like donate to charity and give donations to family members up to a certain amount of money. You can also have a flexible spending account that is set up through your employer that can help you to pay for things and is pre-taxed so you get more for your money. You must always remember the marginal tax effect.
An individual is able to use his/her legal name for the business or come up with a different name as long as he/she files a d.b.a. for the name. (Lau, T, & Johnson, L., 2011) The below points of interests are of value in helping with a decision: • Liability – as a sole proprietor that individual is libel for all business expenses as well as coming up with the capital to start the business. This can be difficult if the business starts to fail since the creditors will be able to come after the individuals personal expenses to cover the debts (Smith, 2011). • Income Taxes – being a sole proprietor gives the individual the option to file taxes under a separate employer identification number.
 http://www.irs.gov/businesses/small/article/0,,id=146335,00.html It is important to determine if the taxpayer martially participates because this classifies the income as active or passive. Passive activity losses are non-deductable from active and portfolio income. This is why it is important to determine if the taxpayer martially participates in the business activity. PROBLEMS: 7-46) The $30,000 loss is considered a passive loss and can only be deducted against passive income, it is therefore suspended and carried forward to future years to offset potential passive income in those years. Mary has no martially participation in the rental activity, therefore the loss is considered
Businesses will charge the GST when the service or product is passed on to the consumer. If your turnover is less than $75,000 then you don't have to register for GST although you may do so. All other businesses, with minor exceptions, need to register for GST. The GST Act 1999 governs the GST - A New Tax System (Goods and Services Tax) Act 1999 http://www.austlii.edu.au/au/legis/cth/consol_act/antsasta1999402/ Question 2 What are audits and why are they carried out? (25 words) An audit is an official inspection of a business.
Finally you must list your expenses and reduce or eliminate the ones that are not necessary and don’t affect your standard of living creating a balance; “Avoid extremes: be moderate in saving and in spending; an equable and easy gait.” (Service) Previously you developed the control in your money, now the objective is giving the saving a “salary”. This salary concept is just giving away a percentage of your monthly income to the saving account and this should be permanent. The idea of creating this habit is that later you will not count with that percentage for the daily expenses; it doesn’t matter if it is only the 1%, as Benjamin Franklin said “A penny saved is a penny earned”. (good reads) The idea of all the strategy is the control of the money; this is why you must get more informed about the topic. Reading books is a good way to know better how to control your money and
As a business owner I would use accrual method only because it recognizes Receivables and payable. When using the cash basis a company can appear that it is earning profit when in fact it is loosing funds. Cash basis does not acknowledge money that is owed which make is very difficult to keep accurate records. The IRS generally requires companies to use the cash accrual basis of accounting on their tax return. The Internal revenue service does allow the cash method of accounting if certain criteria are met because tax laws change frequently it is essential to contact a CPA if a business owner decides to use cash basis of accounting.
Under the Family and Medical Leave Act a parent is considered legitimate grounds for taking a leave of absence. (Department of Labor, 2011) 2. Explain whether the size of the business can have any effect on whether Tony is eligible for family leave under the FMLA. Although smaller businesses will take more of a loss with such an important employee taking a leave of absence they should not be