MEMORANDUM
TO: JOHN SMITH, JD
FROM: , CPA
DATE: MARCH 25, 2012
SUBJECT: Recommendations of tax affairs for prospective clients John and Jane Smith
Thank you for stopping by my office on Monday to discuss the relevant inquiries you and your wife Jane have while planning your 2011 tax return. I am only responding to the issues we discussed. I am confident that I can provide the best guidance to minimize your tax liability for I have been in practice for 5 yrs. As you know, there will be a billing for this consultation, but no tax return will be prepared unless an agreement is met. The issues to be discussed are as follows:
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. What is your determination regarding reducing the taxable amount of income for both (a) and (b) above?

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? 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 tax returns or jointly?

If you feel comfortable with the information I provide, I am willing to arrange both federal and state returns from the required materials you will hand over to me. In order to free myself from