Why is this distinction important? Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry-making activities? 2 What tax benefits would John realize if he invested $15,000 in Jane's jewelry making? Can Jane depreciate her vehicle or jewelry-making equipment? How?
To reduce the taxable income of the $300,000 and the $25,000 John should itemize deductions for the business and for his individual tax return. IRC Code Sec. 162 allows business owners to reduce their taxes by deducting ordinary and necessary expenses. John should deduct the expenses for the office lease, office supplies, office furniture, bank fees and any other business related expenses. For the current year John can deduct the costs incurred in purchasing the building such as appraisal and real-estate fees.
b. Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John's case? Property used primarily for personal use, like a primary residence or a second home or vacation home, does not qualify for like kind exchange treatment. (2) You cannot do a 1031 like-kind exchange on your personal residence. A 1031 exchange allows the deferral of capital gains taxes and recapture of depreciation.
However, if the expenses incurred while working on this case were not deducted previously, then they would be non-taxable. 1(c) What is my determination regarding reducing the taxable amount of income for both the $300,000 and the $25,000? As the full amount of the $300,000 was received after the closure of the case in a lump sum, then there is little to do in minimizing the taxes other than taking full advantage of the deductions allowed for businesses. 2(b) Mrs. Smith, your first question is regarding what the different tax consequences would be on paying down the current mortgage and assuming a new mortgage for Federal income tax purposes. For the sales of the current home, the IRS states that married taxpayers can exclude up to $500,000 of gain upon the sale of the residence.
Eisenhower communications is trying to estimate the first-year net operating cash flow (at year 1) for a proposed project. The financial staff has collected the following information on the project: Sales revenue $10 million Operating costs (excluding depreciation) $ 7 million Depreciation $ 2 million Interest expense $ 2 million The company has a 40 percent tax rate, and its WACC is 10 percent a. What is the project’s operating cash flow for the first year? b. If this project would cannibalize other projects by $1 million of cash flow before taxes per year.
Utilizing the percentage of sales forecasting method we were able to derive a pro- forma income statement and balance sheet projections. Furthermore, by employing the sensitivity analysis’ we are able to enter various inputs to speculate the effect of cost of goods sold on debt. 2. Based on your pro-forma projections, how much additional financing will The Body Shop need during this period? Based on The Body Shops pro-forma projections the firm will need £2,102,000 in additional financing, if the amount of capital spent on costs to produce and distribute the beauty care products exceeds 45% of sales.
Rather, it only reorganizes debts and formats them for you to repay over time. Reorganization bankruptcies are for businesses, not individuals. Chapter 11 limits the debt to that of the business. In the case of your mortgage, filing Chapter 11 will allow you to re-write your mortgage. Real estate investors will work to rewrite your mortgage by reducing the principle balance to the value of the property.
Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost. c. The company has spent and expensed $1 million on R&D associated with the new project. d. The company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project. e. The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year. 20.
This is done by focusing on key components of taxable income. How can timing strategies and income-shifting strategies be used to affect deductions for adjusted gross income (AGI), dependency exemptions, itemized deductions, and tax credits? Provide at least one example for each. Postponing income until the following year is one way to lower your AGI, paying into a 401K allows one to defer paying taxes on a portion of their income until a later date. Shifting a portion of income to family members can also lower ones tax bill, you are allowed to give $12,000 per year to each recipient without incurring a gift tax but watch out for kiddie tax rules before considering this option.
Question 2 of 100 (2B5-LS53) Flag for Review A manufacturer with seasonal sales would be most likely to obtain which one of the following types of loans from a commercial bank to finance the need for a fixed amount of additional capital during the busy season? *Source: Retired ICMA CMA Exam Questions Insurance company term loan. Transaction loan. Unsecured short-term term loan. Installment loan.