...You are a CPA with an office in NearLakes City and clients consisting primarily of professionals, entrepreneurs, and small business owners. John Smith, Esq., a practicing attorney with offices near yours, walks in your office and wants advice from you relating to a recent influx of cash he received as a result of winning a large jury verdict on behalf of his client in a personal injury case. His wife Jane Smith accompanies him during your meeting because she has some additional tax planning advice to ask of you. Role After reviewing John and Jane Smith’s points of view, it will be your turn as a tax professional to decide on the best course of action from a tax perspective on their issues. Prepare a three page memo (at least 300 words per page) to John and Jane Smith addressing the issues presented. Prepare a three page memo (at least 300 words per page) to John and Jane Smith addressing whether the issues presented above: 1. John Smith tax issues: 1. How is the $300,000 treated for purposes of Federal tax income? 2. How is the $25,000 treated for purposes of Federal tax income? 3. What is your determination regarding reducing the taxable amount of income for both (a) and (b) above? 2. Jane Smith tax issues: 1. What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for Federal income tax purposes? 2. Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional...
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...Acct 553 You Decide John Smith tax issues: a. How is the $300,000 treated for purposes of federal tax income? The $300,000 is taxable income; the reason is that the IRS always collects taxes when we receive a lump sum payment as compensation for negligence, injury or other wrongdoing. Litigants are allowed to bring up a taxation lawsuit in the case of lump sum payments. John, you will have to that the amount is paid to the government on time so that no fines or penalties are charged due to late payment. Or automatically withhold 20 percent of a lump-sum distribution to pay federal taxes owed by the recipient of the disbursement. The Internal Revenue Service determines the exact amount of tax a person owes on a lump-sum distribution based on several factors. If you fail to make the payment of taxes to the IRS for any lump sum payment, such as this one, the law says that you would not only have to pay the taxes back to the IRS, but you would also have to assume the late payment penalty to the government. b. How is the $25,000 treated for purposes of federal tax income? This situation of the $25,000, they are not taxable; it should be treated as expenses, meaning that they can be deducted as expenses for that year. Since profits equal revenues minus expenses, claiming expenses reduces the amount of your taxable profit. You can deduct these expenses from your taxable income. c. What is your determination regarding reducing the taxable amount of income for both...
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...You Decide-Week 4 ACCT553 John Smith tax issues: a. How is the $300,000 treated for purposes of federal tax income? Mr. Smith, in regards to your $300,000 earnings for the successful litigation of your clients case, this will be treated as current year earnings. The payment fits all three doctrines of income starting with the economic doctrine which states “all income from whatever source derived” IRC Code Sec. 61 (a). The constructive receipt doctrine, outlining constructive receipt of payments, allows us to treat the payment for this current year only even though it was income from a case that lasted two years. “Income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.” Reg. §1.451-2. Since these earnings were under the restriction of a successful verdict for your client, the payment could not be considered as earned any sooner than now. Since you operate your legal practice through an LLC, the assignment of income falls to the Limited Liability Corporation of which you are the primary member. Although the income is assigned to the LLC, there is only one layer of income tax, yours, since the LLC is treated as a conduit entity. All income will pass through to you as ordinary income, after business exclusions and deductions of course. The LLC is a disregarded entity and for federal tax purposes the activities of the business will be treated as if you were a sole proprietor (IRC Code Sec.752)...
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...Freud’s Id, Ego, and Superego Personified in Jane Eyre Charlotte Bronte’s Jane Eyre follows the story of Jane, an orphan, as she develops from a young girl to a young woman of marriageable age. While there are many other characters in the novel, the most developed ones are Jane and the two men that propose marriage to her: Edward Rochester and St. John Rivers. Almost a century after Bronte published her novel, Freud theorized that the psyche developed into three different parts: the id, the ego, and the superego. Jane Eyre’s three main characters personify these parts of the human psyche: Rochester represents the id, St. John the superego, and Jane the ego. Edward Rochester, Jane’s employer and the master of Thornfield, exemplifies Freud’s id. The id, as interpreted by Saul McLeod, is the part of the psyche that is the most basic, unconscious, instinctual part; it begins at birth and demands immediate satisfaction, it is also contains the libido. It acts according to the “pleasure principle” and seeks only self-gratification and pain avoidance (McLeod). Mr. Rochester, wealthy and with few responsibilities, is left free to spend his time pursuing pleasure, traveling Europe, and having an affair with the French singer and dancer Celine Varens. He is not bothered by society’s morals when he tries to marry Jane, even though it would make him a bigamist because he is already married to the woman hidden in his attic. The marriage to Jane also flaunts society’s norm of class separation...
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...MEMORANDUM To: John and Jane Smith From: XXXXXX, CPA Near Lakes City Date: February 7, 2013 Dear Mr. & Mrs. Smith, Thank you for coming to our offices and allowing us to review and discus your concerns regarding your tax questions. I have been assigned to reply to your questions and I have listed my recommendations below. After you both have reviewed these recommendations, please contact me so we can go over any additional questions you may have. Mr. Smith’s questions: 1(a) How is the $300k treated for purposes of Federal tax income? According to the IRC §61(a)(1), “Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items”, the $300,000 you received must be included as part of your gross income, compensation for services, and as such it is taxable. 1(b) How is the $25,000 treated for purposes of federal tax income? The $25k you received as a recovery for expenses you paid in advance must also be treated as income. In general, an expense cannot be deducted if paid in advance. This is true for both the cash basis method of accounting and the accrual method of accounting. The prepaid amount is treated as an asset with a useful life extending beyond the current tax year, and carried over to the tax year where the expense applies. The Internal Revenue...
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...AC553 – You Decide 1. John Tax Issues: a. How is the $300,000 treated for purposes of Federal tax income? The $300,000 is included in John’s Gross Income. Section 61 of the IRS Tax code generally defines gross income as all income from whatever source derived, including the compensation for services, fees, commissions, fringe benefits and similar items. Therefore the $300,000 is classified as compensation John received for legal services rendered. b. How is the $25,000 treated for purposes of Federal tax income? The $25,000 should also be included in gross income, as they are also included in the fees for the legal services) provided. c. What is your determination regarding reducing the taxable amount of income for both a and b In order for John to reduce the taxable amount of his income of $300,000, he must maximize his deductions as business expenses. Business expenses are the cost of carrying on a trade or business. Expenses are usually deductible if the business is operated to make a profit. The tax code Section 162- Trade or business expenses indicates for a business expenses to be deductible, it must be both ordinary and necessary. An ordinary expense is one that is common and accepted in the business, while a necessary expense is one that is helpful and appropriate for the business. The other requirements for an expense to be deductible as a business expense include, it being reasonable in amount and practice; an expense is allowable...
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...John Smith worked on a case for more than two years and received a lump sum payment of $300,000 for his work plus an additional $25,000 for pre-paid expenses. He wants to know how this money will be treated for tax purposes. John’s company is what is known as an LLC or Limited Liability Company, and for U.S. federal income tax purposes, an LLC is treated by default as a pass-through entity. Since John is the only person in the company, the LLC is treated as a “disregarded entity” for tax purposes, and an individual owner would report the LLC’s income or loss on Schedule C of his individual tax return. According to the IRS, Taxable earned income includes: • Wages, salaries, tips, and other taxable employee pay • Union strike benefits • Long-term disability benefits received prior to minimum retirement age • Net earnings from self-employment • Gross income received as a statutory employee (What is Earned Income?, 2012) According to the IRS description above, John earned a total of $325,000 from the case that would be considered taxable income. The $25,000 is included as income for the expenses that John has incurred over the past two years. However, John will only be able to deduct expenses that occurred during the current year and any prior year expenses should have been deducted in the tax year that they were incurred. If this was not completed, he should amend any previous year’s return to reflect the deductions. This money is reported as income and should be reported...
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...Case Study 1.1 INTRODUCING WORK-LIFE BALANCE AT OXFORD MANUFACTURING Fiona McQuarrie, University College of the Fraser Valley Oxford Manufacturing is a company with 350 employees in a large Midwestern city. It specializes in producing custom plastic products, although it also manufactures a range of small plastic items (such as storage boxes and water bottles) that it sells to wholesale distributors. Because of the variety of products the firm produces, its workers have a wide range of skill levels and qualifications: engineers with university degrees work on design and production specifications for customized products, and assembly line workers, some of whom did not finish high school, operate machines in the production facility. The company’s plant operates 12 hours a day, seven days a week—although if a large order cannot be produced during regular hours, operating hours may be added to meet that demand. Over the last few years, where Oxford is located, the demand for workers has begun to exceed the supply. Oxford’s owners have realized that the company can no longer afford to sit back and let potential employees find them, as was the case in the past. They also realize that the company is now increasingly competing for employees, especially skilled ones, with other manufacturing firms in the same area. These realities have led Oxford’s owners to decide that Oxford needs to be seen as a “preferred employer” if it is going to attract and retain the best employees. They...
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...Family Owned Business Estate Planning In this case study, as John’s financial advisor, I have been tasked with reducing, or eliminating the potential estate tax burden of John’s estate. Additionally, I am tasked with maximizing the amount of wealth transferred to John’s heirs. John, age 61, is married to Jane, age 60. He owns Victory Company, a family business professionally valued at $5.6 million. He and Jane have three children and seven grandchildren. One son, Paul, manages Victory Company and will someday own it. John's overall wealth is about $15 million. This includes the $5.6 million value of Victory Company, which nets $1.5 million before tax and after paying John a $300,000 salary plus liberal fringe benefits. After taxes, John earns about $400,000 to $600,000 more per year than he and Jane spend. The balance of John's wealth includes two homes (a main residence and a vacation home) worth a combined $2.7 million; $1.7 million in his 401(k) plan; cash assets and a stock and bond portfolio totaling $1.8 million; $2.9 million in income-producing real estate; and $300,000 in sundry assets. There also is $6.2 million in insurance on John's life that is now owned by an irrevocable life insurance trust (ILIT). This insurance includes a $1.2 million whole life policy and $5 million in 10-year term insurance with six years remaining in the term. Business This first thing I need to get a handle on is John’s company. The $5.6 million value of Victory Company represents over...
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...Memo |To: |Mr. & Mrs. John Smith | |From: |----------, CPA | |CC: |---------------------- | |Date: |May , 2013 | |Re: |YOU DECIDE, WEEK 4 | John Smith Tax Concern 1(a): The issue is the $300,000 in income for John’s fees. How to treat this in Federal Income Tax? In reading Cornell University Law School (as much of this memo comes from) referencing the IRS code, Section 61(a), the code the concept of income is broad and general. Gross income means all income from whatever source derived, including (but not limited to) the following items: (1) Compensation for services, including fees, commissions, fringe benefits, and similar items; (2) Gross income derived from business; (3) Gains derived from dealings in property; (4) Interest; (5) Rents; (6) Royalties; (7) Dividends; (8) Alimony and separate maintenance payments; (9) Annuities; (10) Income from life insurance and endowment contracts; (11) Pensions; (12) Income from discharge of indebtedness; (13) Distributive share of partnership gross income; (14) Income in respect of a decedent; and (15) Income from an interest in an estate or trust. (I.R.C § 61) My investigation of this leads me to conclude that Section 61(a) basically says that...
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...AC553 You Decide Week 4 John and Jane Smith Tax issues and recommendation 1. John Smith Tax Issues: 1(a) How is the $300,000 treated for purposes of Federal Income Tax? Since the $300,000 was derived from a business activity the amount should be included in the Gross Income reported for the John Smith LLC (IRS Regulation 1.61-3(a)). The assumption is being made that none of the income has been reported previously and that the LLC using a cash basis accounting method (IRS Publication 334). Because the income is reported in the LLC the income will also be reduced by all appropriate Cost of Goods Sold relevant to the business activity. The deductions from income will follow the guidelines relating to IRS Code Sections 62, 162 and 212 which focus on clarifying that the expenses are reasonable and that they are necessary for the performance of the business activity. Once the applicable deductions and credits (including any Net Operating Loss carry forward amounts) have been realized from a tax perspective at the business level the Net Income from the business will flow through to the personal income level where it will be taxed at the marginal tax rate of the individual. Summary: The $300,000 will be reported as gross income for the business LLC (IRS Regulation 1.61-3(a)), which will then be reduced by the appropriate Cost of Goods Sold and any applicable Tax Credits (IRS Code Sections 62, 162 and 212). At that point the Net Income from the business will flow...
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...hereditary obligation upon the town” (Faulkner 30); and she is a monument to the past in a small, modernizing southern town in the late nineteenth century. Throughout her life, her father routinely dismisses all of her potential suitors until the day of his death. Alone and betrayed, Emily is unable to accept his passing; and it is several days until the body is removed. She lives alone for many years until she meets a man, Homer Barron, who becomes her first true suitor. In time Emily realizes that Homer is not willing to commit and is faced with the prospect of living a lonely, solitary life. She takes action, poisoning him with arsenic from the druggist, and tucks him into bed ensuring that she will never be alone again. The protagonist, Jane,...
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...women by men in the 19th century was profoundly great. Some mental disorders had no root in science or observation but were social constructs used to control and manipulate women. A modern, scientific analysis of Gilman’s “The Yellow Wallpaper” reveals that it’s heroine doesn’t suffer from the socially constructed “nervous depression”, but from a real clinical diagnosis: Bipolar I Disorder. Through the course of this story, Jane displays all the necessary criteria to receive a diagnosis of Bipolar I Disorder. Jane describes herself as being tired and depressed. She has irregular sleeping, eating and activity patterns. Through her writing, she conveys anxiety, paranoia, and delusions. The most damaging part of her disorder is the hallucinations she experiences as witnessed by her descriptions and personification of the wallpaper in the nursery. The text reveals through her own words, as well as her writing style, that she transitions from the depressive phase of Bipolar I Disorder to full-blown mania with psychosis. From the beginning of the story, Jane presents with depression. She displays guilt immediately, saying her condition “…always makes me feel bad.” Her guilt is also shown while discussing John’s care of her, stating, “…I feel so basely ungrateful not to value it more.” She also makes several references to herself as a “comparative burden.” Her guilt is reflective of her depressive state, which makes her more contrite and obedient to her...
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... True False Feedback: See pages 118, 120-121. A defendant must raise objections to venue, personal jurisdiction, and form and method of service of process in their first response to the complaint (pre-answer or answer) or the issue is waived and may not be reconsidered at a later time. Question 2 of 30 2.5 Points A defendant can remove a case from state court to federal court even if the federal court could not have heard the case initially. True False Feedback: See page 27- “FAQ”. Removal jurisdiction is available to defendants only in cases that the plaintiff could have commenced in federal court. Question 3 of 30 2.5 Points Is it possible for a defendant to file a motion to dismiss for personal jurisdiction and a motion for summary judgment simultaneously? A.Yes B.No Feedback: A motion to dismiss is asserted prior to the answer (as an alternative to an answer) or in the answer to the complaint. A motion for summary judgment is made after the filing of the complaint and answer. Question 4 of 30 2.5 Points John Doe (Arizona) sues Jane Smith (California) and Joe Johnson (California) in federal district court in California. A.The court does not have jurisdiction as the defendants are both from California and not diverse. B.The court does not...
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...Reflection Journal #4 Leo Vodovozov Diversity in the Workplace Professor Tamu Chambers November 24, 2014 | | Introduction to self-assessment in diversity workforce Did you know, in United States; individualsstill legally are fired based on their sexual orientation in 29 states and their gender identity in 35 states? With that said, after completing my exercise in Pie Chart and Diversity Questionnaire (in Canas and Sondak, Chapter 11), I’ve came to realize that in our society we are very prejudices towards people as of this moment, some may not even realize their actions and the effects of the smallest thing can do to another person. There is constant discrimination everywhere we look at; it is almost as though society is incapable of evolving away from it. Discrimination is a very hard barrier to break. To discriminate means to "distinguish between one another; to make a difference in treatment or favor on the basis other than individual merit. "Everyone at some point in their life experiences some form of discrimination that might be on the basis of their race, religion, age, or sex. Discrimination is currently viewed from many different angles. Because of this, I have decided to discuss one types of discrimination, which is equal employment opportunity discrimination. Throughout this paper, I will attempt to answer several questions. Such questions are as follow, what is equal employment opportunity discrimination and whom does it affect? What did I learn...
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