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 colonisation 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(prenominal) 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 hap fees and is gross income that is revenueable. The monies are reported in a parliamentary procedure of affair C (Sole proprietorship profit or loss) for personalised income assess form. 1(B)How is the $25,000 collected in fees treated for federal assessation income purposes? The IRS identifies that authentic expenses are treated as a bring to be collected in the future by the knob (Burnett v. Commissioner, 356 F.2d 755 (5th Cir. 1966). It excessively identifies that gross income may not include due income to recoveries during the tax year in question from amounts deducted in an early(a)(prenominal) 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 finish regarding cut back the taxable amount of income from both (a) and (b) supra? IRC Section 301.7701-3 subsection (a) states that a busine ss entity can categorise as an S corporatio! n because it is a small 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 among paying round off the mortgage (debt) and assuming a new mortgage (debt)? IRS allows a tax deduction for enliven 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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