You Decide Week 4

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Your Decide Assignment Week 4
ACC 553

1. John Smith tax issues:
a. How is the $300,000 treated for purposes of federal tax income?
In order to determining how the $300,000 fee was received as Federal income on the part Mrs. John Smith, we first have to determine the requirements for income. According to Code Sec. 61(a)(1) of the Internal Revenue Code (IRC) “gross income includes all income from whatever source derived,” that is including the following items: compensation for services, including fees, commission, fringe benefits and similar items (Intuit-TaxAlmanac, 2006). In John’s case, income received from fees that were paid by his client from rendered services will meet that requirement of gross income. Under Section
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John currently leases the property for $3,500 per month for total of $42,000 annual payments. Payment under a lease is deductible (Smith, Harmelink, & Hasselback, 2013). Rent is any amount you pay for the use of the property you do not own (IRS.Gov, 2011). John can deduct rent as a business expense only if the rent for the property is used solely for business. If John decides to purchase the building he will indeed benefit from the purchase versus leasing the property. John will benefit from Code Sec. 179, which allows him as a taxpayer to immediately expense a portion of the cost of newly acquired depreciable property rather than depreciation it over multiple years (Smith, Harmelink, & Hasselback, 2013). A taxpayer may elect to treat the cost of section 179 properties as an expense, which is chargeable to capital account (Cornell University Law School, 2013). They are limitations as to dollar amount that need to be taken into account under Section 179. If taxpayer places more than $2,000,000 worth of section 179 properties into service during a single taxable year, than under section 179 deductions is reduced, dollar for dollar, by the amount exceeding $2,000,000 threshold (Cornell University Law School, 2013). This threshold is reduced to $560,000 for years beginning in 2012, and $200,000 thereafter (Cornell University Law School, 2013). In addition for the purpose of
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