Jane Smith tax issues: e. What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for federal income tax purposes? f. Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John's case? g. Does Jane have a business or hobby? Why is this distinction important? h. Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry-making activities?
Hi John and Jane, Please find my advice and recommendations on your tax issues below: John Smith tax issues: A – The $300,000 will be included as gross income. It is compensation for services rendered. B – I am having trouble understanding this $25,000 recovery for expenses paid. Was this the amount of money the client had already paid out of his pocket for your services? Or did you suffer these expenses to work on this case?
1. John Smith's tax issues: Issue a) How is the $300,000 treated for purposes of federal tax income? Applicable Law & Analysis: Gross Income means all income from whatever source derived which includes compensation for services, including fees, commissions, fringe benefits, and similar items. (IRC Sec. 61(a),(1)) Conclusion: The tax issue here is that John Smith wants to know how the $300,000 he earned through his client fee is taxed.
Also, with even higher liabilities, it may be difficult to meet the debt service agreements if the company doesn’t have enough cash flow from operations. 1(c) What potential income tax ramifications exist for Mr. Johnson personally if he purchases the stock of Smithon and converts it to an S corporation? If the Mr.Jones decides to convert Smithon to a subchapter S Corporation, it will enable the corporation itself to avoid paying taxes, but the profit and losses will be passed to shareholders as personal income and losses. Now we should consider the expected losses from the huge investment in equipment purchase. Net operating losses cannot be used to shelter personal income but can be carried forward by a C corporation to provide tax benefit in future when the business expects profit.
1. Billy Dent, as the owner of an apartment building, receives and makes the following payments during 2012: Received in January 2012 rent that was $5,000 due in December 2011 Received in December 2012 rent not 4,000 due until January 2013 Security deposit which is to be 500 refunded when tenant vacates the apartment How much rental income must Billy Dent include on his 2012 income tax return? 2. Arnold and Barbara Cane were divorced in June 2012. Pursuant to the divorce decree, Arnold is obliged to perform as follows: a.
What about issuing debt in his Johnson Services company to pay for the Smith Company-would that raise debt to equity issues? Mr. Jones will need to evaluate the existing stocks portfolio for Smithon Widgets before resorting to outright purchase of stock even if it was indicated that the company is profitable. He needs to investigate further the reason of the absence of a single majority shareholder from the existing thirty shareholders and how it operated in that condition. Issuing debt by Johnson Services Company to pay for the Smithon Company will certainly raise debt to equity issues. If a lot of debt is used to finance increased operations then it will incur a high debt to equity ratio, the company could potentially generate more earnings than it would have without this outside financing.
Memo To: John & Jane Smith From: Date: [ 8/12/2012 ] Re: Memo summarizing various tax issues 1. John Smith's tax issues: Issue A) How is the $300,000 treated for purposes of federal tax income? Applicable Law & Analysis: The $300,000 you earned from your services as a lawyer is going to have to be reported as gross income. As section 26, 61 clearly stats in the U.S code “gross income means all income from whatever source derived, including (but not limited to) the following items: Compensation for services, including fees, commissions, fringe benefits, and similar items…etc.” According to tax law the $300,000 you received from compensation for your services would have to be reported and will be taxed. There is however the option (if you so choose) to not receive the payments all at once.
The programs listed above cover $28,643 per household. The remaining $3,494 is allocated to all other federal programs, including international affairs, natural resources, the environment, regional development, farm subsidies, social services, space exploration, air transportation and energy. Taxpayers — and the next generation that will be paying nearly half of the bill — must decide for themselves if they’re getting their money’s worth. ---- Brian Riedl is the Grover M. Hermann fellow in federal budgetary affairs at The Heritage Foundation. Readers may write to the author in care of The Heritage Foundation, 214 Massachusetts Avenue NE, Washington, D.C. 20002; Web site: www.heritage.org.
Treasury Secretary Henry Paulson’s urging in mere weeks the act will allow 400,000 homeowners in danger of foreclosure to refinance their mortgages into 30-year fixed-rate loans. The Federal Housing Authority (FHA) will back up $300 billion of these loans. Because all these folks need help, and because the FHA requires down payments of only 3%, those who can refinance actually might do so instead of just walking away. Even more incentive: The FHA allows the down payment to be borrowed, gifted or pro-vided by charitable organizations. The FHA will end up with sub prime and junk mortgages where the borrowers have “no skin in the game,” and no upside incentive.
Social Security | A Great “Idea” | | Chris Barron | 12/7/2010 | Professor John MundyEmbry-Riddle Aeronautical University | | | Abstract Should Social security be changed to allow personal retirement accounts? Two arguments have gained traction over the past five years. Argument one being a proposal to allow a portion of all individual’s accounts to be managed by the person as they saw fit, thus eliminating major administrative costs as well as significant benefit liabilities the SS system simply does not have. Argument two is that allowing individuals to manage their own retirement accounts would not fix the system. Rather it undermines the safety net that has provided security to tens of millions for over eight decades.