John & Jane Smith Acc 553

MEMO TO:John & Jane Smith FROM:Cathy Pillar, CPA DATE: January 27, 2012 RE:Course of action for value purposes with recent income awarded in shutdown Thank you for giving me the opportunity to words your recent concerns regarding your taskes. Upon reviewing your information, I have appointed several solutions give tongue to below. I am hoping that they fulfill twain your concerns. With Johns issues: 1 (A)How is the $300,000 collected in fees treated for federal impose income purposes? such fees under Internal Revenue Code 61, constituent (a) arm (1) state that gross income is received as compensations for services, including fees. The $300,000 is con lookred calamity fees and is gross income that is revenueable. The monies are reported in a assign of affair C (Sole proprietorship profit or loss) for own(prenominal) income assess form. 1(B)How is the $25,000 collected in fees treated for federal value income purposes? The IRS identifies that authentic expenses are treated as a give to be collected in the future by the client (Burnett v. Commissioner, 356 F.2d 755 (5th Cir. 1966). It excessively identifies that gross income may not include referable income to recoveries during the task year in question from amounts deducted in otherwise tax years up to which it does not reduce the tax amount.

The monies should be reported the year it was expensed as gross income. 1(C)What is your intention regarding cut back the taxable amount of income from both (a) and (b) preceding(prenominal)? IRC Section 301.7701-3 subsection (a) states that a business entity can reason as an S corporation because it is a s! mall business. Itemizing deductions from both the business side and the personal side would lower taxing. Forms 1120S would be used for the business portion. Jane issues: 2(A)What are the different tax consequences amongst paying round off the mortgage (debt) and assuming a new mortgage (debt)? IRS allows a tax deduction for delight that is paid towards a old residence and one other home...If you want to get a full essay, order it on our website: BestEssayCheap.com

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