Essay on Corporate Tax Case Study

1189 Words5 Pages
SCENARIO: You are a CPA with an office in NearLakes City and clients consisting primarily of professionals, entrepreneurs, and small business owners. John Smith, Esq., a practicing attorney with offices near yours, walks in your office and wants advice from you relating to a recent influx of cash he received as a result of winning a large jury verdict on behalf of his client in a personal injury case. His wife Jane Smith accompanies him during your meeting because she has some additional tax planning advice to ask of you.
ROLE: After reviewing John and Jane Smith's points of view, it will be your turn as a tax professional to decide on the best course of action from a tax perspective on their issues. Prepare a three page memo (at least
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Does it make any difference that I use my car primarily for transporting my jewelry to different shops around town? Finally, I think I can earn more money if John were willing to invest $15,000 for new jewelry making equipment since my original equipment, which cost $10,000 five years ago, is almost obsolete. Does this make sense from a tax perspective?”

Given the scenario, your role and the information provided by the key players involved, it is time for you to make a decision.

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Prepare a three-page memo (at least 900-1,500 words per page) to John and Jane Smith addressing the issues presented:
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?
d. Is it more beneficial to continue leasing the business space or to buy the building?
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
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