Pick line Leader 2:
Tricia Ridge Memo To: Summary of various tax issues 1 John Smith's Tax Issues: Since John did not know the amount of the settlement prior to receiving the fee, he would not have been able to use the accrual method of accounting in the prior year.
According to Code Sec. Although the expenses were not specified, they would most likely meet the criteria listed above for Code Sec.
There are various actions that can be taken to assist in the reduction of taxable income from items a and b above. Our first course of action is to identify and gather all ordinary and necessary expense paid or incurred during the year related to the conduction of operating the business.
These expenses, as defined in Code Sec. In efforts to reduce his taxable amount, John could amend his previous year's tax return and use accrual accounting to split his income and expenses between the two years. This would lower his taxable income in the current year.
What are the differences? Rent expense for your business must first be tested for deductibility IRC a governs, as stated above.
That narrative further supports the deductibility of the rent paid. Since we are examining the deductibility of a business expense, chances are a good place to look for guidance regarding deductibility is the instructions for the form used to report the income.
Personal ownership of real property does allow for deductions for depreciation and interest on the acquisition financing. Operating expenses are also deductible when you own, such as insurance, utilities and the like.
Insufficient information is provided to make a mathematical determination of the tax benefits. Rent, on the other hand, will be fully deductible.
The issue is determining the differences in tax consequences between paying down and mortgage and assuming a new mortgage.
Currently, the allowable deductions for homeowners are loan origination fees, property taxes, and mortgage insurance paid. Comprehensive Topics, Therefore, if John and Jan can afford payments on a bigger house, they would see larger tax deductions on the current allowable deductions previously stated.
Points paid are also deductible within limitations during the first year, with the remainder spread out equally over future tax periods.
In effect, there are typically more factors involved in the decision to refinance, usually stemming around the improvement of cash flow, and a shorter remaining term on the mortgage in question.
The issue is whether or not Jane and John can utilize a exchange on a house using the fee obtained by John. Code, The purchase of a house as described above cannot be used as a exchange. Since the house would be for personal use, it does not qualify according to the code. Why is this distinction important?
The issue is does Jane have a business or a hobby and why is the distinction important. Code, This was confirmed by the Doggett v.
Burrett court stating that the first requirement that must be satisfied in order for an activity to be treated as a trade or business activity is a legitimate profit motive. The issue is whether or not Jane and John would realize better tax benefits if she had a separate jewelry making business.
Since we've determined that Jane is operating a trade or business, and not a hobby, it would be beneficial to have a separate business for her jewelry making activities.Home Essays Week 4 You Decide Activity 1.
Week 4 You Decide Activity 1. Topics: Taxation in the United States, 4/24/15 Re: Summary of various tax issues (1) John Smith's Tax Issues: (a) How is the $, treated for purposes of federal tax income? Applicable Law & Analysis: The issue is to determine how the $, fee that John.
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Nov 22, · Notice: We recently upgraded our comments. (Learn more here.)If you are logged in as a subscriber or registered user and already have a Display Name on r-bridal.com, you can post comments. Week 4 You Decide Activity 1 Words | 5 Pages the compensation was earned this year, even though you worked on the case for two years, you will include it as ordinary income this year.