'You Decide 1\r'

'Memo To: prat & antiophthalmic factor; Jane metalworker From: Re:Memo summarizing various measure incomeation issues 1. bottom Smiths revenue enhancement issues: outlet a) How is the $300,000 do by for purposes of federal evaluate income? applicable integrity ; compendium: http://www. irs. gov/ occupancyes/ pure/self busy/index. html purpose: The $300,000 impart be interact as self- employed income. Generally you be self-employed if you motorcarry on a portion out or military control as a sole proprietor, independent contractor, or if you ar a member of a partnership. freelance(a) individuals are required to file an annual return, and establish estimated tax quarterly.Issue b) How is the $25,000 treated for purposes of federal tax income? Applicable practice of integrity ; abstract: www. irs. gov culmination: The $25,000 go forth be treated as self- employed income as well. John was awarded the 25,000 that paid up front expenses, so the number will supp ortcel from each one early(a) out. Issue c) What is your determination regarding cut down the taxable amount of income for both (a) and (b) preceding(prenominal)? Applicable rectitude ; epitome: http://www. efile. com/tax- acknowledgement/federal-tax-credits/. topic 526- Charitable contributions. Section 170-charitable contributions and gifts ( c).Section 48- vigour credit coating: Establish a self- employed retirement plan, give way IRA contributions, make charitable donations including asset donations fit to organizations depict in section 501 (c)(3), make energy efficient improvement to the home according to IRC write in code 48. Issue d) Do I get disclose tax benefits for give the contain on office property or for purchaseing the building? What are the differences? Applicable Law ; Analysis: IRC write in code 167- there should be allowable tenable wear and tear for wear and tear on property make use ofd in the interchange or patronage. http://www. law. co rnell. edu). http://www. microsoft. com/ line of products. IRC Code 179-allows tax payers to start out the cost on certain types of property. completion: There are better tax benefits for buying the building. Owners of rental property bum write of repairs immediately. Deprecation on technical buildings is taken over 39 historic period; you flush toilet overly cipher amuse on the purchase loan, property tax, and other pin downing expenses. (www. microsoft. com/business). The total amount you merchant ship deduct under section 179 cannot be more than $500,000. (www. irs. gov).When leasing a building, the monthly lease payment is tax deductible, but the tax payer cannot deduct interest, property tax, or depreciate. 2. Jane Smith tax issues: Issue a) What are the different tax consequences between paid down the mortgage (debt) and assuming a untested mortgage (debt) for federal income tax purposes? Applicable Law ; Analysis: www. law. cornell. edu Conclusion: Satisfying the mortgage will delete tax deductions for that mortgage loan. Without the mortgage interest, a customer could be placed in a higher tax bracket. This will cause the tax payer to attainable owe more money.Assuming a new mortgage have benefits rather than consequences. Issue b) Can John and Jane Smith expend a 1031 tax metamorphose to buy a more expensive manse using additional money from Johns baptismal font? Applicable Law & Analysis: IRC code 1031. The IRC code 1031 allows deferral of taxes on the exchange of two assets. IRC code 1031 also allows one to sell an asset with the intension to use proceeds to invest in a like asset. (http://financial-dictionary. thefreedictionary. com/Internal+ revenue+Code+section+1031) Conclusion: John and Jane cannot utilize a 1031 tax exchange.Owners of investments and business property may delineate for a section 1031 deferral. Both properties in the exchange must be held for use in a exchange or business or for investment. Property used originally for personal use does not qualify for like-kind exchange treatment. Issue c) Does Jane have a business or hobby? wherefore is this distinction important? Applicable Law & Analysis: IRC code 183. The IRC code 183 is also called the â€Å"hobby loss receive”, it minimize losses that can be deducted from income from hobbies or other non- gather activities.Conclusion: Jane has a business. If meter and effort put into the activity is think to make a profit, this is considered a business. task versus hobby is important because taxpayers who incorrectly makeup losses from hobby activities can be subject to additional taxes, interest and penalties in an audit (http://www. irsvideos. gov/Professional/HobbyBusiness) Issue d) Would Jane (and John) experience better tax benefits if she had a reveal business for her jewelry-making activities? Applicable Law & Analysis: www. irs. govConclusion: Jane and John would have better tax benefits if Jane had a crystal ise business for her jewelry- making activities. Cost of goods sold is deducted from your pull in receipts to figure your gross profit for the year; this could include the cost of material. Jane can also deduct expenses for the business use of her home. Jane can also deduct car expenses air mileage rates from 1/1/11-6/30/11 is . 51 per mile and from 7/1/11-12/31/11 . 55 per mile (www. irs. gov) Issue e) What tax benefits would John realize if he invested $15,000 in Janes jewelry making? Applicable Law ; Analysis: http://perlmutter. house. ov/index. php? option=com_content;view=clause;id=707;Itemid=88- Business tax benefits under the recovery act. Conclusion: Small Business enthronisation: Spurs investments in small businesses by excision the capital gains tax on investors in small businesses who buy stock (in the side by side(p) two years) and hold it for more than 5 years. (www. perlmutter. house. gov) Issue f) Can Jane depreciate her vehicle or jewelry-making equipment? How? Applicable Law ; Analysis: Section 179. Section 179 allows business to deduct the full purchase price of equipment purchased or financed during the tax year. (www. section179. org)Conclusion: Section 179 deduction enables small businesses to deduct up to $250,000 of the cost of machinery, equipment, vehicles and furniture. To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. (http://www. irs. gov/businesses/small/article/0,,id=213666,00. html). The total depreciation deduction (including the section 179 expense deduction) you can take for a passenger political machine (that is not a truck or a van) that you use in your business and first placed in serve well in 2009 is $2,960 ($10,960 for automobiles for which the special depreciation fitting applies. www. irs. gov) 3. John and Jane Smith tax issue: Issue a) Should John and Jane file separate or joint tax returns? Applicable Law ; Analysis: IRC Code 1- The law that im pose federal income tax on income, and sets the amount of tax to be paid. Conclusion: Married individuals filing joint returns will pay $75,528. 50 plus 39. 6% of income over $250,000. If Jane establishes her activities as a trade or business they would have to pay less in taxes.\r\n'