You Decide

Section 61 of the Internal Revenue Code defines income as “income from whatever source derived unless otherwise excluded” (2014, IRC Code). In determining income, several key concepts have evolved from this definition. Explain the following concepts, and provide at least one example of each. Explain which concept you think is most beneficial from a taxpayer’s point of view and which concept is most beneficial from IRS’s point of view.

Thank you for the opportunity to work on your behalf for tax preparation this year. Per our previous discussion, I have prepared this memo as a preliminary work on this year’s tax strategy. The three main sections are constructed according to inquiries made by each of you individually and, then, to conclude on the options available for you both and my recommendation.

From the information that was provided, the income was derived from the business and this gross income is taxable pursuant to Code§1.61-3(a). He is subject to self-employment tax, since the total amount of income that will come through to his personal tax income of half of the self-employment tax liability.

1. (TCOs 2, 3, and 5) As we know, Congress devised a very broad definition of income and codified this definition in Section 61 of the Internal Revenue Code. Explain the Code’s definition of income and how it

A hobby is more than just something that you do in your leisure time. It is something that you make time to do and look forward to doing. Insurmountable pleasure and relaxation can be obtained from doing something that you consider fun to do. It can be described as creative, fascinating, practical, inexpensive, enjoyable, different or unusual.

-Spouse B’s $8,000/month for 11 months of income from work because these are taxable wages that are paid to Spouse be for employment.

A2d. Partnership Income and Losses: Income and loss from a partnership is business income. The loss or income for the business is reported to the IRS on form 1065 but the partnership does not pay taxes on the income. Instead, the profits or losses are passed through to the individual partners on Schedule K-1 and they account for the taxes on their individual tax returns. Spouse A’s $142,000 from Schedule K-1 will be reported as income on their 1040 tax return. The $85,000 in withdrawals from the business will not be

Issue d) Would Jane (and John) realize better tax benefits if she had a separate business for her jewelry-making activities?

The $300,000 is treated as business income. After deducting all of the business expenses, the

Analysis: The prospective deductions include interest expense, real property tax, utilities, insurance, maintenance and depreciation, which may generate tax savings limited to the income from

50 points) Sally is on the Board of Directors for Sally Susie's Donut Shop, Inc ("SSDS"). SSDS is a calendar year corporation on the accrual method of accounting. The taxable income for SSDS in year 1 was $250k, in year 2 donut sales plummeted and SSDS only made $10k. In year 3 SSDS had business pick up again and the taxable income was back to $150k. You think, "wow, donut sales is a volatile market!" SSDS made a charitable contribution on January 31 of year 2 of $50k to a 501(c)(3) charity. Sally comes to you as SSDS's tax advisor and asks how she should have deducted this amount optimally as she was very unhappy with her previous tax advisor. What do you advise, and what questions would you ask?

e. Suppose you created a two-stock portfolio by investing $50,000 in High Tech and $50,000 in Collections.

The home office deduction is available to many SMB owners who work out of their homes exclusively or routinely meet clients and work at home. You can deduct a percentage of your home that 's used exclusively for business and the same percentage of most of your household expenses like repairs, utilities, routine maintenance, insurance, mortgage interest, property taxes, rent, office supplies and many other costs. You can deduct actual expenses or take the recently approved standard deduction for home offices.

The company would benefit from an exemption from taxes for both the county and the municipality for five years.

Operating Income- Is like earnings before interest and taxes and is also commonly referred to as recurring profit. Operating Income = Gross Income -Operating Expenses - Depreciation & Amortization.Operating income + Total non-operating income. Sunnyvale reported net income of $7,860,000 for 2011: $3,747,000