Premium Essay

Advanced Tax Reporting

In: Business and Management

Submitted By jamesonbradford
Words 1134
Pages 5
Re: Tax Issues

Relevant Facts
John Smith, Esq. worked on a case for over two years. The jury awarded his client $2,000,000 in damages, of which his fee was $300,000 plus recovery of expenses paid up front in the amount of $25,000.
John is also thinking about buying the building that he currently leases his office space in. His current lease is $3,500 per month. John Smith’s business is a separate law practice established as an LLC.
Jane Smith sells handcrafted jewelry which earned her $20,000 last year. Jane’s jewelry making equipment is five years old, cost $10,000 and is almost obsolete.
Specific Issues
1. John Smith tax issues:
a. How is the $300,000 treated for purposes of federal tax income?
b. How is the $25,000 treated for purposes of federal tax income?
c. How can John reduce the taxable amount of income for both (a) and (b) above?

d. Is it more beneficial to continue leasing the business space or to buy the building?
2. Jane Smith tax issues:
a. What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for federal income tax purposes?
b. Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John's case?
c. Does Jane have a business or hobby for federal income tax purposes? Why is this distinction important?
d. Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry-making activities?
e. What tax benefits would John realize if he invested $15,000 in Jane's jewelry making?
f. Can Jane depreciate her vehicle or jewelry-making equipment? How?
3. John and Jane Smith tax issue:
a. Should John and Jane file separate or joint tax returns?
Conclusions
1. a. Per 26 USC § 1 – Tax Imposed, there are two tables that can be applied.
For married individuals filing joint returns:
If…...

Similar Documents

Premium Essay

Reporting Practices and Ethics Paper

...that has been established to achieve the goals for the company. The financial manager integrates the third step of organizing by using the resources that the company possesses to carry out an effective plan. When directing, the financial manager provides supervision to make sure that resources are being used efficiently and adequately. Last but not least, the decision making process is important to a company’s relevance. The financial manager uses decision making by addressing alternative options that are available to accomplish goals for the company if plan A is not successful. GAAP are guidelines and rules that are set for all accountants to follow to provide relevant, reliable, and accurate financial information. GAAP supports using a tax code for the IRS and states. “Without generally accepted accounting principles, these organizations would have difficulty asking for specific financial information from businesses and would not be able to institute widespread changes effectively”. (Tyler Lacoma, (n.d.), What Are the Functions of Generally Accepted Accounting Principles) Also, other principles include: investor research, international business, and flexibility. Competence is one of the key financial ethical standards that finance professionals must uphold. To be competent finance professionals must [possess the education and training that is necessary for qualifying positions. Also finance professionals must continue to gain knowledge about their position that will......

Words: 767 - Pages: 4

Premium Essay

Advanced Corporate Reporting

...Rules-based accounting adds unnecessary complexity, encourages financial engineering and does not necessarily lead to a ‘true and fair view’ or a ‘fair presentation’. Discuss Rules-based accounting has not worked in practice. The present U.S. system does not produce accurate reporting. This has made standards longer and complicated and has led to arbitrary criteria for accounting treatments that allows companies to structure transactions to circumvent unfavorable reporting . Lease accounting contains hundreds of pages of rules while almost no leased assets appear on the corporate balance sheets. The system has created an industry of financial engineering and rules closing structuring loop holes will result in more elaborate ways to evade them. 3. Describe the objectives and progress to date of the convergence project. Objectives * Make existing standards compatible as soon as practicable * Once compatibility is achieved, to work together in future to ensure compatibility is maintained. * A common set of high quality global standards remains a priority of both the IASB and the FASB. * To eliminate a variety of differences between International Financial Reporting Standards and US GAAP. Sept 2002 IASB and FASB signed the Norwalk agreement to start the convergence project. Objectives: Feb 2006 IASB and FASB released a Memorandum of Understanding (Roadmap) identifying short-term and long-term convergence projects. Nov 2008 ......

Words: 651 - Pages: 3

Premium Essay

Advanced Accounting

...expense each month (or whenever internal reporting is made). In this case, waiting until the end of the year and recording all of the expense at one time through a worksheet entry might not be the best way to reflect the impact of the expense. Amount of intercompany transactions. As with amortization, the volume of transfers can be an important element in deciding which accounting method to use. If few intercompany sales are made, monitoring the subsidiary through the application of the equity method is less essential. Conversely, if the amount of these transactions IS significant, the added data can be helpful to company administrators evaluating operations. Sophistication of accounting systems. If Pilgrim and Crestwood both have advanced accounting systems, application of the equity method may be relatively simple. Unfortunately, if these systems are primitive, the cost and effort necessary to apply the equity method may outweigh any potential benefits. The timeliness and accuracy of income figures generated by Crestwood. If the subsidiary reports operating results on a regular basis (such as weekly or monthly) and these figures prove to be reliable, equity totals recorded by Pilgrim may serve as valuable information to the parent. However, if Crestwood's reports are slow and often require later adjustment, Pilgrim's use of the equity method will provide only questionable results. McGraw-Hill/Irwin Hoyle, Schaefer, Doupnik, Advanced Accounting, 9/e © The McGraw-Hill......

Words: 16464 - Pages: 66

Premium Essay

Financial Reporting

... Like-for-like sales (ex-fuel, ex-VAT) +6.0% +8.2% £767 2010 2009 m £767m £636m Underlying profit before tax 20.5 2010 2009 pence 20.5p 16.7p Underlying earnings per share £924 Net debt 2010 2009 www.morrisons.co.uk/annualreport10 m £924m 8.2 2010 2009 pence 8.2p 5.8p Total dividend per share £642m Annual report and financial statements 2010 2 Chairman’s statement HigHligHts 2009/10 Strong financial performance • Profit before tax £858m • Underlying profit increased 21% • Underlying basic earnings per share 20.5p See page 18 for more on Operating results Dividend growth once again • Total dividend for the year 8.2p • Increase of 41% from 2009 • Dividend cover 2.5 times Board changes • New CEO Dalton Philips, March 2010 • Two new Non-Executive Directors See page 26 for Board of Directors biographies sir ian gibson, Chairman Morrisons had another good year. Once again our focus on fresh food and great value appealed to shoppers everywhere, and we have successfully grown sales and profits to record levels. We completed delivery of the Optimisation Plan first launched four years ago, and we are well on the way to cementing our position as the ‘food specialist for everyone’. The opening of 43 stores in the year accelerated our journey from National to Nationwide. £858 7.12 m Profit before tax increased £203m compared to last year £655m. 23 % increase Underlying earnings per share increased to......

Words: 57108 - Pages: 229

Premium Essay

Case Project for Advanced Financial Accounting and Reporting

...strengthen the company’s global financial competitiveness. Moreover, it will simplify the accounting and consolidation process significantly and reduce financial reporting costs. 2) What potential effect would arise if Klugen were to select the option under IFRS 3 to value non-controlling interest at the proportionate share of its subsidiaries’ net identifiable assets? For business combination, the buyer can control without buying all of the equity, the remaining , so-called the non-controlling, equity interests are measure either at fair value or at the non-controlling interests’ proportionate share of its subsidiaries’ net identifiable assets. Under IFRS 3, the potential effect would arise is that it will result in benefits for users by improving comparability and will increase the relevance of information provided. Moreover, it identifies and evaluates the main costs and benefits for users. 3) Do you believe that an impairment of goodwill would be more likely under IFRS or under U.S. GAAP? Why or why not? There is a difference in goodwill impairment measurement. Under U.S GAAP, two-step approach is used. It looks to the reporting unit. However, under IFRS, one-step approach is used. It is based on the value in use and it looks to the cash-generating unit. The cash-generating unit is smaller than reporting unit and leads to more impairment of goodwill. I believe that an impairment of goodwill would be more likely under IFRS. Under IFRS, good will is no longer......

Words: 1806 - Pages: 8

Free Essay

Reporting

... 10. Complete and Compact Document: Report is a complete and compact written document giving updated information about a specific problem. 11. Systematic Presentation of Facts: Report is a systematic presentation of facts, figures, conclusions and recommendations. Report writers closely study the problem under investigation and prepare a report after analyzing all relevant information regarding the problem. Report is supported by facts and evidence. There is no scope for imagination in a report which is basically a factual document. 12. Prepared in Writing: Reports are usually in writing. Writing reports are useful for reference purpose. It serves as complete, compact and self-explanatory document over a long period. Oral reporting is possible in the case of secret and confidential matters. 13. Provides Information and Guidance: Report is a valuable document which gives information and guidance to the management while framing future policies. It facilitates planning and decision making. Reports are also useful for solving problems faced by a business enterprise. 14. Self-explanatory Document: Report is a comprehensive document and covers all aspects of the subject matter of study. It is a self-explanatory and complete document by itself. 15. Acts as a Tool of Internal Communication: Report is an effective tool of communication between top executives and subordinate staff working in an organization. It provides feedback to employees and to executives......

Words: 3609 - Pages: 15

Premium Essay

Advanced Tax

...ADVANCED TAX Consider the following examples designed to illustrate the point that you should study the law and not problems. General rule on income: All income is taxable unless something in the tax law says that it is not. General rule on deductions: Nothing is deductible unless some provision in the tax law says that it is. General rule on losses: The only losses that are deductible are for 1) Investment, 2) Business, or 3) Casualty. Example #1: Bill is in love and buys his girlfriend, Hillary, an engagement ring at a cost of $100. Later, she notices his roving eye and returns the ring to him and he sells it for $95. What is the tax result? (Megan and Phuong) SP = 95, basis = 100 ( loss = The loss is not deductible because the only losses that are deductible are for investment, business or casualty. Example #2: Bill is in love and buys his girlfriend, Hillary, an engagement ring at a cost of $100. Later, she notices his roving eye and returns the ring to him and he sells it for $105. What is the tax result? (Phuong and Jake) The gain of $5 is taxable because nothing says it’s not HEAD OF HOUSEHOLD – The requirements are as follows: 1. The person must be unmarried. 2. The person must a) provide at least half the cost of a household in which at least one b) dependent c) relative lives. Note that in the case of a dependent parent, the parent need not live with the taxpayer. EXAMPLE #3: Justin is single, lives alone, and fully......

Words: 1026 - Pages: 5

Premium Essay

Financia Reporting

...Topics: Income from continuing operations * Income from continuing operations includes the revenues, expenses, gains and losses that will probably continue in future periods. * In general, gains and losses result from changes in equity that do not result directly from operations but nonetheless are related to those activities. * INCOME TAX EXPENSE is shows as a separate expense in the income statement. * TAXABLE INCOME comprises revenues, expenses, gains, and losses as measured according to the regulations of the appropriate taxing authority. * While the actual measurement of income tax expense can be complex, at this point we can consider income tax expense to be a simple percentage of income before taxes. * A distinction often is made between operating and nonoperating income. * OPERATING INCOME includes revenues and expenses directly related to the primary revenue-generating activities of the company. * NOPERATING INCOME relates to peripheral or incidental activities of the company. (like selling investments and interest expense in nonoperating income) Earnings quality * The presentation of the components of net income and the related supplemental disclosures provide clues to the user of the statement in an assessment of earnings quality. * Earnings quality is used as a framework for more in-depth discussions of operating and nonoperating income. * The term EARNINGS QUALITY refers to the......

Words: 2391 - Pages: 10

Premium Essay

Financial Reporting

...Executive summary This report has three main parts. Firstly, I describe the different users (Stakeholders) of Finance statements and their needs and assess the implications for users of financial statement. Then, I explain the legal and regulatory influences on financial statements preparation like Companies Acts. After that, I describe how different policies are dealt with by accunting and reporting standard including FRS, IASB, SSAP, GAAP and ASB). Furthermore, I calculate accounting ratio consisting of Solvency, Profitability, Capital Gearing, Dividend Yield, Assets to assess the performance and position of Vinamilk and then prepare a report incorporating and interpreting accounting ratio, compare against the previous year, regional and also local competitors. This report provides an analysis and evaluation of the current and prospective profitability, liquidity and financial stability of Vinamilk Corp. Methods of analysis include ratios such as Debt, Current and Quick ratios, etc. Results of data analysed show that all ratios are below industry averages. In particular, comparative performance is a little bit downfalls in the areas of profit margins, liquidity, credit control, and inventory management. The report finds the prospects of the company in its current position are not positive. The major areas of weakness require further investigation and remedial action by management. Recommendations include: • improving the average collection......

Words: 6334 - Pages: 26

Premium Essay

Advanced

...acquisition date. APIC is adjusted for any difference between the price and the carrying amount. E The parent company and subsidiary exist as separate legal entities and maintain separate accounting records. However, each reporting period their separate accounting records are combined into one set of consolidated financial statements for reporting the financial position and results of operations of a consolidated reporting entity. 1 Consolidated financial statements are prepared for all the companies under the control of a single management team to reflect a single reporting entity with multiple divisions. 2 The purpose of consolidated financial statements is to present fairly, primarily for the benefit of the owners and creditors of the parent company, the results of operations and the financial position of a parent and all its subsidiaries as if the consolidated group were a single entity. 3 The subsidiary will continue to report the results of its separate operations to its noncontrolling stockholders. 4 The consolidated entity (the reporting entity) has no transactions and it does not maintain a ledger. The financial statements of the separate legal entities are combined only for external reporting purposes. CONSOLIDATION POLICY A Under current GAAP, consolidation is required for all corporations that are over 50% owned except: 1. Where control does not rest with the majority ownership 2. ......

Words: 1702 - Pages: 7

Premium Essay

Tax Evasion

...FOLLOWING SOURCE): Type report Title Tax evasion and the source of income : an experimental study in Albania and the Netherlands Author(s) K. Gërxhani, A. Schram Faculty UvA: Universiteitsbibliotheek Year 2003 FULL BIBLIOGRAPHIC DETAILS: http://hdl.handle.net/11245/1.427430 Copyright It is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), other than for strictly personal, individual use, unless the work is under an open content licence (like Creative Commons). UvA-DARE is a service provided by the library of the University of Amsterdam (http://dare.uva.nl) (pagedate: 2014-11-27)TAX EVASION AND THE SOURCE OF INCOME: AN EXPERIMENTAL STUDY IN ALBANIA AND THE NETHERLANDS AIAS Working Paper 03/11 May 2003 Dr. Klarita Gërxhani AMSTERDAM INSTITUTE FOR Prof. Dr. Arthur Schram ADVANCED LABOUR STUDIES Universiteit van Amsterdam © Klarita Gërxhani Amsterdam, May 2003 This paper can be downloaded at www.uva-aias.net/files/aias/WP11.pdf Amsterdam Institute for Advanced Labour Studies Tax Evasion and the Source of Income: An Experimental Study in Albania and the Netherlands 5 Tax Evasion and the Source of Income: An Experimental Study in Albania and the Netherlands∗ Abstract A series of experiments among different social groups in both Albania and the Netherlands give the opportunity to compare behavioral patterns related to tax evasion. Aside from the decision......

Words: 15662 - Pages: 63

Premium Essay

Tax Prepretion

...What's New This Year Publication 5101 All tax preparers, Quality Reviewers, instructors, and Site Coordinators must pass the Intake/Interview and Quality Review test. Income Virtual Currency The IRS announced that convertible virtual currencies, such as Bitcoin, would be treated as property and not as currency, thus creating immediate tax consequences for those using Bitcoins to pay for goods and services. Taxpayers having transactions in virtual currencies are out of scope for the VITA/TCE programs. Standard Deduction The standard deduction for taxpayers who do not itemize deductions on Form 1040, Schedule A, has increased. The standard deduction amounts for 2015 are: * Married Filing Jointly or Qualifying Widow(er) - $12,600 (increase of $200) * Head of Household - $9,250 (increase of $150) * Single or Married Filing Separately - $6,300 (increase of $100) Taxpayers who are 65 and Older or are Blind For 2015, the additional standard deduction for taxpayers who are 65 and older or blind is: * Single or Head of Household - $1,550 (no change) Married taxpayers - $1,250 (increase of $50) Personal ExemptionsThe amount a taxpayer can deduct for each exemption increased to $4,000 for 2015. | Standard Mileage For 2015, the following rates are in effect: * 57.5 cents per mile for business miles driven * 23 cents per mile driven for medical or moving purposes 14 cents per mile driven in service of charitable organizations (no......

Words: 4268 - Pages: 18

Premium Essay

Reporting

...emphasis added). In the conversation of gestures, communication takes place without an awareness on the part of the individual of the response that her gesture elicits in others; and since the individual is unaware of the reactions of others to her gestures, she is unable to respond to her own gestures from the standpoint of others. The individual participant in the conversation of gestures is communicating, but she does not know that she is communicating. The conversation of gestures, that is, isunconscious communication. It is, however, out of the conversation of gestures that language, or conscious communication, emerges. Mead's theory of communication is evolutionary: communication develops from more or less primitive toward more or less advanced forms of social interaction. In the human world, language supersedes (but does not abolish) the conversation of gestures and marks the transition from non-significant to significant interaction. Language, in Mead's view, is communication through significant symbols. A significant symbol is a gesture (usually a vocal gesture) that calls out in the individual making the gesture the same (that is, functionally identical) response that is called out in others to whom the gesture is directed (Mind, Self and Society 47). Significant communication may also be defined as the comprehension by the individual of themeaning of her gestures. Mead describes the communicational process as a social act since it necessarily requires at......

Words: 3897 - Pages: 16

Premium Essay

Tax Planning

...reproduced in full or in part without the express permission of the publisher. 2 Table of Contents Acknowledgements 2 1. Executive Summary 4 2. Background 5 3. Purpose 6 4. Methodology 6 5. Outcomes 5.1 Face-to-face workshops 5.2 Virtual Workshop 7 7 12 6. Conclusions 16 7. Recommendations for workforce development 17 Recommendation 1: Use stakeholder-based approaches 17 Recommendation 2: Identify context-specific requirements 17 Recommendation 3: Be aware of ‘systems’ 17 Recommendation 4: Use practice as learning 17 Recommendation 5: Focus on learning for the future 17 Recommendation 6: Apply global resources locally 17 Recommendation 7: Avoid the ‘reporting trap’ 17 Appendix 1: Workshop methodology Face-to-face Workshops Virtual Workshop 18 18 19 Appendix 2: Workshop insights on Resilience 20 Appendix 3: Workshop insights on Insurance 26 3 1. Executive Summary Why would Westpac Bank send more than 450 staff to work with an Indigenous development organisation in Cape York?1 Why is BHP Billiton supporting the development of an anti-malarial drug for children?2 Why does Fosters support Indigenous children’s health programs?3 Why do countless small businesses provide resources to local schools, sports clubs and charities? Why has NAB gone carbon neutral when it is not legally required to do so?4 Corporate Social Responsibility (CSR) in many......

Words: 14126 - Pages: 57

Premium Essay

Tax Accounting

...13 chapter TAX ACCOUNTING OBJECTIVES After completing Chapter 13, you should be able to: 1. List what are permissible tax years. 2. Explain the requirements for changing a tax year. 3. Identify the available accounting methods. 4. Understand the rules for accounting method changes. 5. Account for the capitalization of inventory costs. 6. Describe long-term contract reporting. 7. Defi ne the installment method of accounting. 13–2 CCH FEDERAL TAXATION—COMPREHENSIVE TOPICS OVERVIEW The fi rst 12 chapters are presented primarily from the individual taxpayer’s point of view (including self-employed taxpayers). This chapter provides a general discussion of the previous material as it applies to other entities and provides a discussion of accounting periods and accounting methods as they apply to all entities. Discussions of specifi c provisions as they apply to other entities (e.g., corporations, partnerships, etc.) are contained in subsequent chapters. The term “fi nancial accounting” refers to the reporting of the fi nancial data of an enterprise through fi nancial statements prepared in accordance with generally accepted accounting principles. Income tax accounting, hereafter referred to as “tax accounting,” is concerned with the reporting of fi nancial data to satisfy the requirements of the Internal Revenue Code, the Regulations which interpret the Code, rulings by the IRS which further interpret the Code and Regulations, and the decisions of the courts...

Words: 30831 - Pages: 124