The proposed use of the property by the state and the church probably will make it exempt from the School District’s ad valorem tax. Based solely on current cash flow due to the cost of the two projects and the potential tax credit, you would benefit by selecting the more expensive renovation project.This would hardly be the case with a car dealership. Although this selection would cost ,000 more than the less expensive one, you would benefit from the ,000 tax credit, for a net cash flow gain of ,000.See the discussion in connection with Example 4 in textbook. (LO 2) A possible explanation could be that Sophia made capital improvements (e.g., added a swimming pool) to her residence and her parents became retirees (e.g., reached age 65). 2016 Essentials of Taxation/Solutions Manual (LO 4, 5) Raabe, Maloney, Young, Smith, & Nellen, CPAs 5191 Natorp Boulevard Mason, OH 45040 February 25, 2015 Cynthia Clay 1206 Seventh Avenue Fort Worth, TX 76101 Dear Cynthia: I am writing this letter to help you decide on what form of entity to choose for your new burrito delivery business. He has inquired as to the availability of the rehabilitation tax credit and its impact on the structure’s cost recovery basis if he incurs either 0,000 or 0,000 of qualifying rehabilitation expenditures.
These are the S corporation and the limited liability company. Business Tax Credits and Corporate Alternative Minimum Tax 17-5 Although other considerations are likely relevant to Mr.
If you choose an S corporation, we would probably convert the entity to a C corporation when the business becomes profitable. Chaing while he decides which of the two renovation projects to pursue, certainly the impact of the rehabilitation tax credit on the current cash flow should not be overlooked.
Alternatively, if you expect the business to generate a sufficiently large profit each year, it might be best to choose the limited liability company. If Ashley wants to have access to all available cash from the business, then she will have to pay out dividends annually. Alternatively, if she does not need to pay out dividends, then she may be better off by incorporating, since only the corporate tax will be incurred [$256,280 ($20,550 $77,630 $158,100)], which is less than her individual tax [$280,700 ($33,250 $84,700 $162,750)]. The charitable deduction helps fund private organizations and causes that are operated in the interest of the general welfare. Although the tax is paid by the producer, it is reflected in the selling price of the goods. A National Sales Tax taxes numerous transactions and is collected on the final sale of goods and services to the consumer. High rates of tax cheating can lead to several undesirable consequences. The issue is whether it is appropriate for the sales contract and the construction contract for the buyer to reflect amounts different from those the taxpayer normally would expect (i.e., $25,000 lower for sales contract and $25,000 higher for construction contract).
If you would like me to give you a clearer recommendation, we should meet at your earliest convenience. Corporate Tax Liability Sales Revenue Cash Expenses Depreciation Taxable Income Corporate Tax Liability 2015 2016 2017 $150,000 (30,000) (25,000) $ 95,000 $ 20,550 $320,000 (58,000) (20,000) $242,000 $ 77,630 $600,000 (95,000) (40,000) $465,000 $158,100 Introduction to Taxation 1-3 Cash Available for Dividends Sales Revenue Tax-Free Interest Income Cash Expenses Corporate Tax Liability Cash Available for Dividends $150,000 5,000 (30,000) (20,550) $104,450 $320,000 8,000 (58,000) (77,630) $192,370 $600,000 15,000 (95,000) (158,100) $361,900 $104,450 (15,668) $ 88,782 $ 79,273 $428,586 $192,370 (28,856) $163,514 $130,353 $361,900 (54,285) $307,615 $218,960 Ashley’s After-Tax Cash Flow Dividend Received Tax on Dividend at 15% rounded After-Tax Cash Flow PV of Cash Flow* Present Value *Present value factors (.8929, .7972, .7118) from Appendix F. 2015 2016 $150,000 (30,000) (25,000) $ 95,000 $ 33,250 $320,000 (58,000) (20,000) $242,000 $ 84,700 $600,000 (95,000) (40,000) $465,000 $162,750 $150,000 5,000 (30,000) (33,250) $ 91,750 $ 81,924 $483,936 $320,000 8,000 (58,000) (84,700) $185,300 $147,721 $600,000 15,000 (95,000) (162,750) $357,250 $254,291 2017 Individual Tax Liability Sales Revenue Cash Expenses Depreciation Taxable Income Individual Tax Liability** **Rate = 35% Ashley’s After-Tax Cash Flow Sales Revenue Tax-Free Interest Income Cash Expenses Individual Tax Liability After-Tax Cash Flow PV of Cash Flow* Present Value *Present value factors (.8929, .7972, .7118) from Appendix F. The value of her stock will increase and she can then sell the stock at a later date at favorable capital gains rates. By providing a limitation on the source of the wages involved, it also encourages job growth. This relieves government of the need for considerable public funding. Consequently, it is collected from the consumer and not the producer of the product as does a VAT. • • A loss of confidence in the self-assessment system, such that certain levels of cheating are assumed to occur, and the number of cheaters increases. The appeal would be to the Federal Circuit Court of Appeals and then to the U. Factors supporting the willingness of the seller to sell the building for $75,000 and to charge $175,000 for the construction work include the following.
One of the most important factors in your situation is the relationship between your personal tax rate and the tax rate of a regular C corporation. It also eases the task of the IRS as to administration of the tax law. 2016 Essentials of Taxation/Solutions Manual When taxes become “too high,” taxpayers increase the rates of tax cheating, because the pay-off from misconduct increases. The potential buyer has asked the seller to reduce the sales price by $25,000, in exchange for his promise to pay $25,000 more for the renovation services.
If you are in a high tax bracket and if the income in the business is sufficiently low, you might be best off choosing the S corporation. above, the present value of future cash flows is substantially greater if she does not incorporate under this assumption. (LO 2) A Value Added Tax (VAT) taxes the increment in value as goods move through the production and manufacturing stages to the marketplace. Property and transaction taxes are difficult to cheat on, as the tax base is easily detectible, while cheating on taxes on income and asset transfers may be more easily accomplished, and enforcement activities by the taxing agency become more expensive. This request appears to be made solely to maximize the tax benefits that would result to the buyer for the rehabilitation expenditures credit.In this case, the use tax probably is the same amount as the Washington sales tax. Small cases decisions are published as Summary Opinion, found commercially and on the U. Therefore, the cost recovery basis of the building would be 4,000 [0,000 (original cost) plus 0,000 (capital improvements) less ,000 (amount of credit)].See the discussion in connection with Example 4 in textbook. (LO 2) Although the Baker Motors bid is the lowest, from a long-term financial standpoint, it is the best. (LO 1) The term petitioner is a synonym for plaintiff, which refers to the party requesting action in a court. Because the rehabilitation tax credit is available if you choose the renovation plan costing 0,000 (but not the plan costing 0,000), you need to consider carefully the impact the credit will have on your short-term cash flow position.You will be able to specify the question on the gift card page Enter your email address and question in the "Message" box. We apologize for the inconvenience, if you are not satisfied you can use the credit for another question in future. Important : Do not enter your email address in the "Recipient E-mail" field on next page but enter "[email protected]". Unformatted text preview: CHAPTER 1 INTRODUCTION TO TAXATION SOLUTIONS TO PROBLEM MATERIALS PROBLEMS 1. Many such taxes could affect any cost-of-living differential. (LO 1) A tax is proportional if the rate of tax remains constant for any given income level. The parsonage probably was not listed on the property tax rolls because it was owned by a taxexempt church. Circuit Court of Appeals will carry more weight than will one that was rendered by a trial court. Although the Ninth Circuit Court of Appeals might be influenced by what the Second Circuit Court of Appeals has decided, it is not compelled to follow such holding. Regular decisions involve novel issues that have not been resolved by the Court. These activities should be substantial in nature and substantially transform the product. 75–7, 1975–1 CB 244 (now repealed); Ashland Oil, 95 T. 17-4 2016 Essentials of Taxation/Solutions Manual For the credit to be available, the law requires that a taxpayer substantially rehabilitate the structure.From the standpoint of the Internal Revenue Service (IRS), economy exists as collection costs are nominal (when compared with revenue generated). District Court as the trial court for litigation, the U. District Court of Wyoming will be the forum to hear the case. If the taxpayer selects a different trial court (i.e., the appropriate U. They are not precedents for any other court decisions and are not reviewable by any higher court. By incurring 0,000 on rehabilitation expenditures, a credit of ,000 (0,000 × 20%) would be available.