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7 Most Common Tax Questions Answered by a CPA
CPAs answer a host of tax questions every day about tax returns, deductions, personal finances, and more. Here are some of those FAQs and the answers.
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1. how can i reduce my tax bill, 2. what kind of deductions do i qualify for, 3. what is the difference between marginal and effective tax rates, 4. which is better: a tax credit or a tax deduction, 5. can i deduct medical expenses, 6. should i itemize or claim the standard deduction, 7. how can i stay up to date with tax laws and changes.
- You can often reduce your taxable income by contributing to an employer-sponsored retirement plan or your own individual retirement account (IRA).
- If you have dependents, you may qualify for the Child Tax Credit , a partially refundable credit worth up to $2,000 per qualified child for 2023 and 2024.
- Almost everyone qualifies for the standard deduction or itemized deductions that reduce your taxable income. These are often the largest deductions available to you.
- If you have a side hustle, work as an independent contractor, or own a small business, you can deduct many of the costs related to running and maintaining your business.
You may have heard about a possible change to the Child Tax Credit , but don’t worry. TurboTax has you covered. We are up to date with the latest tax laws so you can file your taxes with confidence and accurately claim the Child Tax Credit, if you are eligible. There is no need to delay. File now to get your max refund as soon as possible. If lawmakers expand the Child Tax Credit, the IRS has stated that they will automatically adjust your return and notify you of the update, including any additional refund. No extra steps are required on your part.
When looking for a professional to answer your tax questions, you want to search for certified public accountants (CPAs) . These individuals specialize in accounting and have experience dealing with taxes on a regular basis.
Tap into the knowledge and expertise of these tax professionals by reviewing some of the most commonly asked questions they receive below.
The tax code provides several ways to control your tax bill through deductions and credits . Tax deductions allow you to reduce your taxable income, and tax credits allow you to directly reduce your tax liability.
When you make income from a job, you can often reduce your taxable income by contributing to an employer-sponsored retirement plan or your own individual retirement account (IRA). You may also have a high deductible health plan through your employer with access to a health savings account (HSA) or flexible spending account (FSA).
All of these accounts allow you to contribute pretax dollars to invest or hold in cash for saving or for certain expenses. As a result, these contributions lower your taxable income and save you money on your tax bill.
If you have dependents, you may qualify for the child tax credit , a partially refundable credit means to lower the cost of raising a child. This credit, worth up to $2,000 for 2023 and 2024, lowers your tax bill dollar for dollar.
For your 2021 tax return, the Child Tax Credit is expanded by the American Rescue Plan raising the per-child credit to $3,600 or $3,000 depending on the age of your child. The credit is also fully refundable for 2021. To get money into the hands of families faster, the IRS will be sending out advance payments of the 2021 Child Tax Credit beginning in July of 2021. For updates and more information, please visit our 2021 Child Tax Credit blog post.
Almost everyone qualifies for the standard deduction or itemized deductions that reduce your taxable income. These are often the largest deductions available to you. Refer to item 6 below for information on which one might be best for you.
Self-employed workers and business owners may have more opportunities to save on their tax bills, but employees still have plenty of savings opportunities available. As an employee, you can deduct contributions made to IRAs, HSAs and FSAs when preparing your Form 1040 .
For employees, contributions made to your 401(k) or other employer-sponsored retirement plan during the year will not need to be deducted on your tax return. Instead, these dollars have already been taken out of your wages as shown on your Form W-2 .
Further, you can deduct student loan interest if you meet certain income criteria as well as home mortgage interest, state and local taxes and more.
If you have a side hustle, work as an independent contractor, or own a small business, you can deduct a lot of the costs related to running and maintaining your business. You have access to deductions for your home office , self-employment taxes, supplies, equipment, depreciation, health and business insurance, utilities and much more.
TurboTax Tip: A tax credit is often preferable to a tax deduction. Tax credits reduce your tax liability dollar for dollar while tax deductions lower your taxable income.
The United States uses a progressive tax system, meaning as you earn more income, your income falls into a higher marginal tax bracket . The U.S. has seven marginal tax brackets with the lowest beginning at 10% on taxable income above $1 and the highest at 37% on taxable income above $578,125 for single filers and $693,750 for married couples who file jointly. Your marginal tax rate is the tax rate of the tax bracket that your last taxed dollar falls in. For example, if in 2023 your taxable income was $525,000 then your marginal tax rate would be 35% because this amount falls in the 35% bracket.
Your effective tax rate represents the total percentage of your taxable income that goes toward income taxes. The most straightforward way to calculate your effective tax rate is to determine your taxable income and then calculate your total tax bill. From there, you divide the total tax by your taxable income to get your effective tax rate.
All things being equal, a tax credit is often preferable to a tax deduction. Tax credits reduce your tax liability dollar for dollar while tax deductions lower your taxable income. For example, if you prepare your taxes and have a total tax bill of $10,000, a $1,000 tax credit would reduce your bill by that amount.
If you had a $1,000 tax deduction and earned $50,000 in taxable income, your income tax liability wouldn't decrease by $1,000. Instead, your taxable income would now be $49,000. Depending on your tax bracket, that means you would save anywhere from $0 to $370 as compared to $1,000 from a tax credit.
Each year, the IRS allows you to deduct unreimbursed expenses for qualifying medical expenses if they exceed 7.5% of your adjusted gross income (AGI). These expenses can come from:
- Preventative care
- Medical treatments
- Dental and vision care
- Psychologist and psychiatrist visits
- Prescription medications
- Prescription appliances (glasses or contacts, false teeth, hearing aids, etc.)
- Travel expenses paid to receive this medical care (mileage, bus fare, and parking fees)
How much you can deduct depends on your income and whether you itemize your deductions. For example, if your AGI is $100,000 and you itemize your deductions, you can deduct any unreimbursed medical expenses in excess of 7.5% of your AGI, or $7,500 (7.5% of $100,000). If you had $10,000 in unreimbursed qualifying expenses, you can deduct $2,500 ($10,000 - $7,500).
Before the tax reform in 2018, you may have wondered whether you should itemize your deductions or simply claim the standard deduction. That decision got a lot easier after the 2017 Tax Cuts and Jobs Act passed. You typically don't itemize if the standard deduction saves you more on your tax bill.
The standard deduction nearly doubled from 2017 to 2018, making it harder to justify itemizing your deductions. In 2023, the standard deduction comes to $13,850 for single taxpayers and $27,700 for married taxpayers filing jointly. Even so, you should calculate your itemized deductions and compare them to the standard deduction each year to get the most out of the tax savings available to you. For 2024, these amounts increase to $14,600 and $29,200, respectively.
2023 was anything but quiet in terms of tax law changes. You might feel challenged to keep up with the flurry of updates, but you shouldn’t worry. TurboTax has the pulse on the latest changes to tax laws each year and will keep tax tips updated for new tax year so you can feel confident in filing.
Whether you want an expert to do your taxes from start to finish, or expert help while you file on your own, TurboTax has expert-backed offerings to meet your needs. With TurboTax Live Assisted , our tax experts help you complete your taxes, fix any mistakes, and explain what's next. Or, with TurboTax Live Full Service , a local tax expert matched to your unique situation will get your taxes done 100% right - as soon as today. Whichever plan you choose, you'll get you taxes done with 100% accuracy and your maximum refund, guaranteed .
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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.
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TurboTax Online: Important Details about Filing Form 1040 Returns with Limited Credits
A Form 1040 return with limited credits is one that's filed using IRS Form 1040 only (with the exception of the specific covered situations described below). Roughly 37% of taxpayers are eligible. If you have a Form 1040 return and are claiming limited credits only, you can file for free yourself with TurboTax Free Edition or TurboTax Live Assisted Basic (if available), or you can file with TurboTax Full Service at the listed price.
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- Student loan interest deduction
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- Unemployment income reported on a 1099-G
- Business or 1099-NEC income
- Stock sales (including crypto investments)
- Rental property income
- Credits, deductions and income reported on other forms or schedules
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664 36) The maximum allowable lifetime learning credit per year is $2,000 per student. 37) The American opportunity tax and lifetime learning credits are available to taxpayers...
607 31) The credit for child and dependent care expenses can only be claimed if a taxpayer incurs employment-related expenses to care for one or more...
259 58. Determine the amount of Earned Income Credit in each of the following cases. Assume that the person or persons is/are eligible to take the...
650 57. Niles and Marsha adopted an infant boy (a U.S. citizen). They paid $14,500 in 2017 for adoption-related expenses. The adoption was finalized in early...
639 26) A taxpayer may become ineligible for earned income credit if he/she has excessive disqualified income such as dividends or interest. 27) The earned income credit...
651 56. Determine the retirement savings contributions credit in each of the following cases. a) A married couple filing jointly with modified AGI of $37,500 and an...
708 55. Determine the amount of child tax credit in each of the following cases. a) A single parent with modified AGI of $213,400 and one child. b)...
678 54. Jenna paid foreign income tax of $1,326 on foreign income of $8,112. Her worldwide taxable income was $91,400, and her U.S. tax liability was...
468 53. In 2018, Jeremy and Celeste who file a joint return, paid the following amounts for their daughter, Alyssa, to attend University of Colorado, during...
620 52. Use the information in Problem 51. What education tax credits are available if Walt and Deloris report modified AGI of $117,300? Does your answer...
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1. Two taxpayers married on November 30. That same year, the husband enrolled in an accredited college to further his career and subsequently received a Form 1098-T, Tuition Statement. The wife was employed with an income of $45,000 and paid for the husband's education expenses. The taxpayers did not receive any other income for the year. Based on their circumstances, what is the correct method to report the education credit?
A. Taxpayers must file a joint return to claim an education credit B. Based on the wife's AGI, they do not qualify to claim an education credit C. Husband is ineligible to claim an education credit because the wife paid his education expenses D. Wife should report nonqualified education expenses on Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)
Key : A References: IRC § 25A(g)(6); Instructions for Form 8863 (2022), page 2
2. The taxpayer has a child under the age of 24 who is a full-time student in their second year of college.
The student will be claimed as a dependent on the taxpayer's return. The student's educational expenses included $8,000 for tuition and $4,000 for room and board. The student received a $5,000 scholarship for tuition use only, as well as an additional $2,500 scholarship to pay any of the student's college expenses. The taxpayer paid the remaining $4,500.
Which of the following statements is correct, based on the information above?
A. The student can claim the American Opportunity credit on the student's return for tuition expenses of $3,000 when the student reports the additional $2,500 scholarship as income B. The taxpayer can claim the American Opportunity credit on the taxpayer's return for tuition expenses of $3,000 when the student reports the additional $2,500 scholarship as income C. The taxpayer can claim the American Opportunity credit on the taxpayer's return for tuition expenses of $3,000, and neither the taxpayer nor the student should report any of the additional $2,500 scholarship as income D. The taxpayer can claim the American Opportunity credit on the taxpayer's return for tuition expenses of $3,000 when the taxpayer reports the additional $2,500 scholarship as income
Key: B References: IRC § 25(A)(b)(1); IRC § 25(A)(g)(3); IRC § 117; Instructions for Form 8863, page 2; Publication 970 (2021), pages 9-20
3. Which of the following statements is correct regarding Form 1095A, Health Insurance Marketplace Statement?
A. Taxpayers do not need Form 1095-A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the premium tax credit or claim the premium tax credit on their tax return B. Taxpayers will receive Form 1095-A to complete Form 8962, Premium Tax Credit, if they have been covered by an employer insurance plan for the entire year C. Taxpayers will use Form 1095-A to complete Form 8962, Premium Tax Credit, to reconcile advance payments of the premium tax credit or claim the premium tax credit on their tax return D. Taxpayers will attach a Form 1095-A to their tax return to reconcile advance payments of the premium tax credit or claim the premium tax credit on their return
Key: C References: Form 8962 Instructions (2022), page 2; Form 1095-A (2022)
4. Which of the following statements is correct regarding Form 8995 Qualified Business Income (QBI) Deduction Simplified Computation?
A. Corporations should complete the Form 8995 to claim the QBI Deduction on their corporate returns B. Taxpayers will receive the Form 8995 from the IRS, if they are determined to be eligible for the QBI Deduction C. A single individual with QBI, whose taxable income doesn't exceed the threshold amount, should use the Form 8995 to claim the QBI Deduction D. A partnership is required to attach Form 8995 to their partnership tax return to claim the QBI Deduction
Key: C References: IRC § 199A(a); Instructions for Form 8995, Qualified Business Income Deduction Simplified Computation (2022), page 1
5. Which of the following is true regarding the premium tax credit (PTC)?
A. Married individuals are always required to file a joint return to qualify for the credit B. For at least 6 months during the year the individual was enrolled in a qualified health plan C. Form 1095-A, Health Insurance Marketplace Statement, is not needed to complete Form 8962, Premium Tax Credit (PTC) D. No PTC is allowed for an individual's coverage for any period that an individual is not lawfully present in the United States
Key: D References: IRC § 36B(c)(1)(C); IRC 36B(e)(1); Pub 974 (2021); Instructions for Form 8962 (2022), pages 2-5
6. Which of the following situations is reported on Form 1099 MISC:
A. Payment of non-employee compensation of $600 or more B. Payments of rent of $400 C. Payments of $5 in royalty income D. Payments made to a physician or other supplier or provider of medical or healthcare services of $600 or more made in your trade of business
Key: D References: Instructions for Form 1099-MISC and 1099-NEC, pages 1-10; Treas. Reg. 1.6041-1
7. What is the total amount a sole proprietor is obligated to report on Forms 1099-NEC based on the following expenses claimed on schedule C?
Attorneys' fees to incorporated law firm: $600
Sign painter: $800 ($600 labor and $200 materials)
Web page designer: $500
Incorporated janitorial company: $800
Consultant A: $1,000 ($400 paid in cash and $600 paid by check)
Consultant B: $500 paid in cash
Consultant C: $400 paid by check
A. $1,400 B. $1,600 C. $2,000 D. $2,400
Key: D References: Instructions for Form 1099-MISC and 1099-NEC pages 8-10; Pub 15-A (2022), pages 4-9 covers whether someone is an employee or a nonemployee independent contractor. (Key is computed as $600 to law firm + $800 to sign painter + $1,000 to Consultant A = $2,400)
8. The standard deduction is increased for individuals who are age 65 and older and/or:
A. Blind B. Retired from the military C. A beneficiary of a trust D. Receiving unemployment compensation
Key: A References: IRC 63(f); IRS, Publication 501 (2022), page 23
9. A 62-year-old, married taxpayer files Married Filing Separately, and lives apart from the spouse for the entire taxable year. What is the taxpayer's base amount for computing taxable social security benefits for the taxable year?
A. Zero B. $9,000 C. $25,000 D. $32,000
Key: C References: § 86(c)(1); IRS, Publication 915 (2023), page 3; Publication 17 (2022), page 61
10. Which of the following is NOT included when calculating if any social security benefits are taxable:
A. Interest that is tax-exempt B. Foreign earned income C. Meals excluded form gross income under section 119 D. Employer-provided adoption benefits
Key: C References: § 86(b)(2); Publication 915 (2022), page 3; Publication 17 (2022), page 61 & 63
11. If you have a dependent that you cannot claim for the child tax credit, the dependent may still qualify you for which $500 credit?
A. The Alternative Minimum Tax Credit B. The State and Local Income Tax Credit C. The Credit for Other Dependents D. The Credit for Foreign Dependents
Key: C References: I.R.C. § 24(h)(4); Publication 17 (2022), Chapter 14, Child Tax Credit/Credit for Other Dependents, page 107
12. A child may be subject to kiddie tax in the current year if:
A. Neither parent of the child is alive at the end of the year B. The child is under age 18 at the end of the tax year C. The child has only nontaxable income of more than $2,300 D. The child is required to file a tax return and he or she files a joint return for the year
Key: B References: I.R.C. § 1(g)(2); Form 8615 (2022) Instructions pg. 1, 3
13. Which of the following is correct regarding a personal casualty loss?
A. Loss of property due to progressive deterioration is not deductible B. It is reduced by the amount of your standard deduction C. It must be less than 10% of your adjusted gross income D. It is deducted over a three-year consecutive period
Key: A References: § 165; Publication 547 (2021)
14. The Net Investment Income Tax may apply to which of the following?
A. Alimony B. Traditional IRA distribution C. Taxable mutual fund distribution D. Tax exempt municipal bond interest
Key: C References: IRC § 1411(c)(1) and (5); Instructions for Form 8960 Net Investment Income Tax--Individuals, Estates, and Trusts (2022), pages 1, 5 and 6; Treas. Reg. §§ 1.1411-1
15. A single taxpayer filed their 2008 return and claimed $7,500 for the first-time homebuyer credit. The home was used as a primary residence until it was foreclosed on in the current tax year. Which is correct regarding the first-time homebuyer credit?
A. The balance of the credit must be repaid and is reported on the tax return for the tax year which the foreclosure is completed B. The remaining unpaid credit is pro-rated over 15 years C. Since the home was purchased in 2008, there is no longer a requirement to repay the balance of the credit D. There is no requirement to repay the credit when the home is used as a primary residence for at least 5 years
Key: A References: IRC § 36(f), Instructions for Form 5405 (Nov. 2022), page 1
16. For medical expenses to be deductible as an itemized deduction in the current year, the expense must exceed what percentage of adjusted gross income?
A. 2.0% B. 7.5% C. 10% D. Medical expenses are no longer deductible
Key: B References: IRC § 213; Publication 502, page 2
17. Tax preparation fees for individuals are deductible for the current year as:
A. They are not deductible B. A tax credit on Schedule 1 C. An investment expense on Schedule A D. A miscellaneous itemized deduction subject to the 2% limit
Key: A References: IRC § 67 and 67(g); Pub 17 (2022), page 100
18. Which of the following is true regarding the Report of Foreign Bank and Financial Accounts (FBAR) requirements:
A. The FinCEN Form 114 (FBAR) is filed online with the Financial Crimes Enforcement Network B. The due date for the FBAR filing is generally July 15 of the current tax year for individuals C. The FinCEN Form 114 (FBAR) is filed with the current tax year individual income tax return D. FinCEN will not grant an automatic extension if unable to meet the FBAR annual due date
Key: A References: 31 C.F.R. §§ 1010.350(b); 1010.306(c); Publication 54 (2022), page 8
19. The interest on qualified U.S. savings bonds may not be taxable if an individual pays:
A. A reduced rent that is government subsidized B. Mortgage interest for a rental property C. Household employee wages more than $1,000 D. Qualified higher educational expenses in the same year
Key: D References: I.R.C. § 135; Pub 17(2022) page 58
20. Which of the below is a correct statement regarding Form 8938, Statement of Specified Foreign
A. Form 8938 is attached to your annual return and filed by the due date, including extensions B. If an income tax return is not required to be filed for the tax year, you are still required to file Form 8938 when specified foreign financial assets is more than the appropriate reporting threshold C. If you are required to file Form 8938, you must report the specified foreign financial assets in which you have an interest only if the assets affect your tax liability for the year D. Filing Form 8938 relieves you of the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) if you are otherwise required to file the FBAR
Key: A References: IRS, Bank Secrecy Act, (31 U.S.C. § 5314); 31 C.F.R. §§ 1010.350(a); 1010.306(c); Pub 54, page 8; Instructions for Form 8938 (Rev. November 2021); Pub 4261 (July 2021)
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Basic Federal Income Taxation: Assignment of Income: Assignment of Income: Services
This lesson is best used after studying Federal Income Taxation: Assignment of Income, in class. The lesson includes problem sets to work through, allowing you to apply the Code, Regs., and case law, such as Comr. v. Giannini and Hendrick v. Comr., to a variety of situations involving the assignment of income from services.
On completion of the lesson, the student will be able to: 1. Explain when a waiver of salary must occur to be excluded from gross income. 2. Explain the importance of control in determining whether salary is included in gross income. 3. Determine when an individual is an agent and why this matters for control.
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Assignment Case Study
It is 30 September 2022. You are a tax consultant working in a large accountancy firm, Smith, Murphy & Co, located in Bite, Co Offaly. You recently met with long standing clients of the finis, Deirdre Collins (65 years old — born on 1 June 1957) and her daughters. Louise and Susan who are each Irish tax resident, ordinarily resident and domiciled.
Deirdre’s husband (and father to Louise and Susan), Sean, died on 8 April 2022. Under the terms of Sean’s will, he bequeathed the faun to Louise. Full ownership of the farmhouse (adjacent to the farmland) passes to Deirdre under Sean’s will. Sean farmed the land all his life but he inherited it from his own mother in June 2018.
A professional valuation of the farm assets on the valuation date, which was 5 September 2022 (the same date of the Grant of Probate), was as follows:
Louise is a vet and runs her own veterinary practice after graduating from UCD with a degree in Veterinary Science. Over the years, she helped out her father in running the farm whenever she could find the time but has largely devoted herself to running the veterinary practice which is going from strength to strength and was valued at €500,000 on 5 September 2022.
Louise also owns 50% of the marital home she shares with her husband and three children which is currently valued et €300,000 (and has an outstanding mortgage of €110,000). She is very happy that her dad left the farm to her and so intends to hire a farm manager to run it on a daily basis on her behalf.
Susan is also happy that the farm has been left to Louise as she feels that her parents provided her with a good education and everything she needed growing up so she doesn’t think she has been unfairly treated. In any event, her mother Deirdre plans to transfer 100% of the shares in her company Nadur Foods Ltd to Susan sometime in the future.
Nadur Foods Ltd is a very successful company operating in the catering sector. Deirdre has been a full time working director of the company since it was incorporated in July 1988 and she is the 100% beneficial owner of the shares which comprises 100 ordinary shares of €2 each. Deirdre subscribed for her shares at par value in July 1986.
Deirdre’s shares in Nadia Foods Ltd have recently been professionally valued at €4,077,000 based on the following asset and liability values:
Susan graduated from college with a degree in Food Marketing and has worked with Deirdre in Nadir Foods Ltd on a full time basis since August 2020. Deirdre is torn as to when to actually retire from the company and pass on the reigns to Susan. P. of her would like to retire in December 2022 and part of her would like to hold off retiring until 2024 when Susan will have gained some more experience in the business whilst she is still involved.
Deirdre previously sold shares in 2020 which triggered a taxable gain of E 1,000,000 on which she only paid 10% Capital Gains T. due to revised entrepreneur relief so she is keen to explore if she is able to avail of any other relief on a gift of her Nadir Limited shares to Susan.
Louise and Susan each took an inheritance of E35,000 from their grandmother in 2017. Other than that, they have not received gifts or inheritances from any other sources.
Turning to some routine tax issues, in 2022 Deirdre tells you that she bought and sold shares in ATT Bank plc to an unconnected third party as the share price was the best it’s been in years. She carried out the following share transactions in ATT Bank plc over the years:
- 1/06/1988 – 1,500 shares purchased for E2,500;
- 01/12/1990 – bonus share issue of 1 for 1;
- 01/11/1994 – bonus share issue of 1 for 2;
- 01/06/1998 – rights issue offer of 1 for 6 at E3.10 per share (she took up 50% of the rights);
- 05/05/2004 – sold 1,000 shares for E5.60 per share;
- 01/04/2022 – bought 875 shares for E7.10 per share;
- 16/04/2022 – sold 875 shares for E6.80 per share; and
- 30/08/2022 – sold 2,000 shares for E10.10 per share.
Deirdre recently .Id a painting to her sister for its open market value and made a loss of E15,000 on the sale. She hopes that she can offset this loss against any gain(s) arising on the sale of her ATT Bank plc shares this year (if any).
Earlier in 2022, Deirdre also bought a second hand commercial property for E750,000 as an investment opportunity. The deed of conveyance was executed on 1 March 2022. The contract for sale was signed on 15 January 2022 but no consideration was paid until the sale closed on 1 March 2022. However the Stamp Duty return and Stamp Duty liability are still outstanding hence Deirdre is keen to get everything sorted before 30 November 2022 and asks for your assistance.
- Draft a tax report for Deirdre advising her of the capital acquisitions (“CAT”) implications of the inheritances for her and Louise provided under Sean’s will. Any CAT reliefs identified should be explained and included in your calculations.
- Prepare the CAT’ return for Louise in respect of her inheritance and set out the related tax obligations in letter format.
- Prepare a letter to Deirdre advising her of the capital taxes implications (capital gains, CAT and Stamp Duty) of the proposed transfer of the shares in Nadu Foods Ltd to Susan and identify if any tax reliefs can be utilised now or in the future to minimize any tax which arises.
- Advise Deirdre of her CGT liability (if any) on the disposal of ATT Bank plc shares and the sale of the painting to her sister and set out the related tax obligations. As part of this, a share history schedule for the ATT Bank plc shares should be prepared.
- Prepare a Stamp Duty’ return for Deirdre in respect of the commercial property purchase and set out the related tax obligations. Separately, prepare a calculation of any surcharge and interest payable by Deirdre, if relevant.
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The assignment is worth 40% of the assessment in this course. 2. The assignment has 2 questions, each worth 20 marks. 3. You must submit your assignment before 4. Pm on Thursday, 12 September 2013. 4. Students must submit their assignment electronically via the Turning link [LAWSUITS | 2013 – Semester 2] in the Assignment Submission folder in the Assessment area of the course website in Blackboard.
Online assignments do not require a separate cover sheet. Refer to documentation in the Assignment Submission folder on the naming acquirement of the assignment file. 5. There is no prescribed word limit for this assignment and no penalties will be applied for students who exceed the suggested word limit. As a guide, your assignment could be completed under 3,000 words. 6. Students must retain a hard copy of their submitted work. . Review Sections 5. 3, 5. 5 & 6. 1 of the Course Profile for information on assessment procedures. In particular, note: “Where a non-examination item of assessment (including essays, assignments, take-home tests, etc) is not submitted by the due date and time, a penalty will be levied at the rate of 10% of the marks available for the assessment item per day (or part thereof) that the assessment is overdue.
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LAWSUITS Business Taxation I Assignment I Semester 2 – 2013 Assessment submitted more than 5 days after the due date will receive zero marks. For full details, students should refer to the Law School policy on Late Submission of Assessment & Absences from Mid-Semester Examinations. Extensions for non-examination items of assessment will only be considered in respect of illness or other certified medical condition. Applications for extension shall be made by lodging the Application for Extension of Assessment / Special Mid-
Semester Examination form (and supporting documentation) with the Law School Office prior to the due date for assessment unless the illness or other medical condition is such that the student cannot reasonably be expected to have applied prior to the due date. Students who are granted an extension beyond the due date for assessment items must submit their assessment to the Law School Office, NOT the BELL Faculty Collaborative Learning Centre. ” The Business Taxation Assignment examines a student’s ability to conduct research into taxation issues and to provide advice to a client.
The assignment will also examine an understanding of statutory income, in particular the capital gains tax provisions AT ten Income lax Assessment Act 1 Question 1 and Question AAA require students to clearly identify the relevant tax issues, reference all applicable sections of the Income Tax Assessment Act 1936 and/ or the Income Tax Assessment Act 1997, related tax cases and/or rulings of the Australian Taxation Office. A suggested format to answer Question 1 and Questions AAA is the traditional LILAC approach:l . Identify the relevant issue(s) 2. State the relevant law 3.
Apply the relevant law to the facts provided 4. Reach a conclusion based on the application of the law to the facts Students can review past year examples of Business Taxation assignments in the Assessment folder of the course website. These examples demonstrate some of the better formats used to present answers, however they do not necessarily contain the correct answer. 21 Page LAWSUITS Business Taxation I Assignment I Semester 2 – 2013 Question 1 | 20 Marks Based on the information below determine which receipts, if any, are assessable income for your client for the year ended 30 June 2013.
You answer should include exact dollar amounts and where applicable any relevant rates of taxation that will be applied to this income. Calculations of tax payable are not required. Your answer should reference all applicable sections of the Income Tax Assessment Act 1936 and/ or the Income Tax Assessment Act 1997, related cases and/ or rulings of the Australian Taxation Office and detail any relevant calculations. Your client is an Australian resident and was a pilot for Virtual Airlines International (VA’).
He commenced employment with VIA in 1990. Pursuant to the Civil Aviation Act 1988, our client held an air transport license and a Class 1 medical certificate. Your client’s employment contract with VIA stated he must maintain his air transport license and that VIA will maintain a loss of license insurance on his behalf. This loss of license insurance provided pilots employed by VIA with a lump sum capital benefit if a pilot’s air transport license was cancelled due to medical reasons.
The amount of the capital benefit was determined by reference to a pilot’s age and their rank. The benefit was paid to enable a pilot who had lost their license for medical reasons to navigate the official financial times ahead and establish a new career, as their employment with VIA was most often terminated, unless they can be redeployed to other non-flying duties. In early 2012 your client developed symptoms of an illness known as intermittent entrapment of the femoral nerve, which was formally diagnosed on 10 June 2012.
On 15 June 2012 your client received a letter from the Civil Aviation Safety Authority stating that his Class 1 medical certificate had been cancelled. Unable to continue flying, your client applied to use his remaining sick leave and long service leave entitlements. As a result of losing his air transport license, your client’s employment with VIA was terminated on 1 September 2012. On 1 July 2012 your client logged an application Walt AVIS Insurer Tort a loss AT license payment.
After supplying the relevant documentation and signing a Deed of Release 3 | Page LAWSUITS Business Taxation I Assignment I Semester 2 – 2013 indemnifying VIA and its insurer from any further claims as a result of losing his air transport license, your client received a $250,000 payment from the insurer on 30 September 2012. Your client also received $30,000 of long service leave payments from VIA between 1 July 2012 and 1 September 2012. You have ascertained that $3,000 of this long service leave payment relates to employment prior to 18 August 1993.
Your client also maintained his own Loss of Income insurance policy with Unreal Insurance Ltd. When your client’s employment with VIA was terminated he made an application for payment under this policy. Between 1 October 2012 and 31 December 2012 Unreal Insurance paid your client a total of $60,000 and the policy was then cancelled. You have verified your client received no other forms of income to 30 June 2013. Question AAA | 10 Marks income for your client for the year ended 30 June 2013.
Your answer should reference all applicable sections of the Income Tax Assessment Act 1936 and/or the Income Tax Assessment Act 1997, related cases and/ or rulings of the Australian Taxation Office and detail any relevant calculations. Your client is an Australian resident and is a self-employed inventor. In 2009 your client embarks upon a business venture to exploit, by meaner of licensing rights for royalty income or manufacture of machines for sale, certain machine designs he had invented.
He conducted his business from a small warehouse on an industrial estate in Brisbane. In early 2013, after encountering some difficulties in fully developing his designs, your client entered into an agreement with We Build Them Pity Ltd to provide his expertise and know to a newly formed company Magnificent Machines Pity Ltd (AMPLE). Your client was paid $100,000 in cash and allocated a 20% share of AMPLE. The market value of these shares was $1 50,000 when they were allocated to your client. Page LAWSUITS Business Taxation I Assignment I Semester 2 – 2013 We Build Them Pity Ltd retains the remaining 80% share of AMPLE. To provide this know-how to AMPLE it was necessary to legally transfer ownership of existing prototypes and manufacturing drawings for some of the machines. Your client also producer Rawlins Ana slated In developing prototypes Tort ten remaining machine where no drawings or prototypes existed. You have concluded that by signing this agreement with We Build Them Pity Ltd, represented a real abandonment of your clients inventing business.
When the existing prototypes were moved from his warehouse to premises belonging to AMPLE, your client rented the space to a commercial enterprise, receiving $10,000 in rent to 30 June 2013. Question b | 10 Marks Your client is a wealthy investor and property owner. Your client provides you with information (as detailed below) on various transactions between 1 July 2012 and 30 June 2013. Many of these transactions were undertaken to raise funds for the purchase of a large industrial complex, which is to be finalized in October 2013.
Your client seeks advice as to what amount(s), if any, must be returned as assessable income for the year ended 30 June 2013. In particular, you are required to discuss the capital gains tax consequences of these transactions and determine your client’s net UAPITA gain or net capital loss, if any, for the year ended 30 June 2013. Your advice should include all calculations and references to applicable sections of the Income Tax Assessment Act 1997. 5 Page LAWSUITS Business Taxation I Assignment I Semester 2 – 2013 0 Block of vacant land I On 3 June 2013 your client signs a contract to sell a block of vacant land for $650,000.
Your client acquired this land in January 2001 for $300,000 and incurred $50,000 in local council, water and sewerage rates and land taxes during their period of ownership. The contract of sale stipulates that a deposit f $65,000 is payable when the contract of sale is signed on 3 June, with the remaining $585,000 payable on 3 January 2014 when the change of ownership will be registered. Warehouse I On 30 April 1985 your client acquired a large parcel of vacant land at Rocklike, a suburb in Brisbane with a significant number of commercial buildings.
The purchase price was $180,000 and your client incurs $2,000 in legal fees and $18,000 in stamp duty when purchasing the land. In April 2000 your client signs a contract for the construction of a large warehouse on the land. The final construction cost was 1 The warehouse is used to house your client’s extensive motor vehicle collection. Your client sells the warehouse for $2,000,000 in October 2012. At the time AT sale an Independent valuation revealed ten Lana component AT ten sale price was $920,000.
During the period of ownership your client paid $100,000 in rates and land taxes and $80,000 to insure the warehouse against flood and fire damage. Shares I Your client has a substantial share portfolio acquired over many years. Your client sells the following shares. A. 30,000 shares in E-Sales Ltd. These shares were acquired in March 1995 for $1. 0 a share and sold on 1 February 2013 for $5. 25 a share. Your client incurs $1,500 in brokerage fees on the sale and $2,000 in stamp duty costs on purchase. | Page LAWSUITS Business Taxation I Assignment I Semester 2 – 2013 0 Boat I Your client owned a luxury motor cruiser that was moored at the Manly Yacht Club. The vessel was used for off shore fishing trips and cruising the waters of Morton Bay. Your client purchased the vessel in late 2006 for $140,000 and sells the vessel on 1 June 2013 to a local boat broker for $90,000. Your client paid $25,000 in mooring fees to he Manly Yacht club during their period of ownership and also incurred $20,000 in repairs and maintenance costs.
Dining Table I Your client acquires a large, hand crafted, English oak dining table for $8,000 in April 2001. The table is very old, having been constructed sometime during 1910. Your client auctions the table in April 2013 and it sells for a record price of $50,000. Your client also pays $2,000 in auction fees. During your client’s period of ownership they paid $3,000 to insure the table against loss or damage. Your client also has a significant capital loss carried forward from the 2011-2012 tax ear. These losses total $108,000 and relate to losses from the sale of shares during the 2008 Global Financial Crisis.
You can assume your client is not an eligible Small Business Entity. Therefore the Small Business CUT concessions do not apply to any capital gains made in the year of income. You can also assume your client Is not carrying on a 71 page Dustless as a snare tracer. LAWSUITS Business Taxation I Assignment I Semester 2 – 2013 Marking Guide for the Assignment In marking the assignment answers will be graded on the criteria listed below. Submitted assignments must be of a professional standard. When awarding a mark for each question, consideration will be given to the standard of presentation.
A professional presentation contains no spelling, grammatical or formatting errors. Assignments will be marked online and made available to students before the end of the semester. Question 1 | The general criteria for Question 1 are as follows: 1-2 Answer demonstrates a fundamental misunderstanding of the taxation issues contained in this assignment and does not answer the questions asked. Answer is partially incomplete; it includes a correct approach to the taxation issues and would be acceptable if the answer was completed. Answer includes a correct interpretation of some the relevant taxation issues.
The answer contains insufficient referencing to the relevant provisions of the Income Tax Assessment Acts, or the answer contains insufficient identification of any relevant cases and/or Australian Taxation Office rulings. Answer includes a correct interpretation of most of the taxation issues. The answer contains sufficient referencing to the relevant provisions of the Income Tax Assessment Acts and the answer contains some identification of relevant taxation asses and/or Australian Taxation Office rulings. Answer includes a correct interpretation of all of the taxation issues.
The answer contains all pertinent referencing to the relevant provisions of the Income Tax Assessment Acts, relevant taxation cases and/or Australian Taxation Office rulings. 3-7 8_14 15-18 19-20 8 | Page LAWSUITS Business Taxation I Assignment I Semester 2 – 2013 Question 2 | The general criteria for each part Question 2 are as follows: 1 Answer demonstrates a fundamental misunderstanding of the taxation issues contained in this assignment ND does not answer the questions asked. Answer is partially incomplete or it includes a partially correct interpretation of the taxation issues.
Issues associated Walt capital galas tax contain calculation errors. For example: u It Tails to correctly calculate most of the relevant capital gains and or capital losses. 0 It fails to correctly calculate some of the relevant capital gains and fails to determine the correct overall net capital gain or capital loss for the current tax year. The answer only references some of the relevant sections of the Income Tax Assessment Act. The answer contains lings 5-7 Answer includes a correct interpretation of some the taxation issues.
Issues associated with capital gains tax contain calculation errors. For example: 0 It fails to correctly calculate some of the relevant capital gains and or capital losses but uses the correct approach to calculate an overall net capital gain or capital loss for the current tax year. The answer also references most of the relevant sections of the Income Tax Assessment Act. The answer contains identification of some relevant cases and/or Australian Taxation Office rulings 8-9 Answer includes a correct interpretation of most of the taxation issues.
Issues associated with capital gains tax contain minor calculation errors. For example: 0 It correctly calculates all of the relevant capital gains and or capital losses but fails to correctly calculate the overall net capital gain or capital loss for the current tax year. 0 It fails to correctly calculate one of the relevant capital gains and or capital losses, however it uses the correct approach to calculate an overall net capital gain or capital loss for the current tax year. The answer also references all or most of the relevant sections of the Income Tax Assessment Act.
The answer contains identification of most of the relevant cases and/or Australian Taxation Office rulings. 10 Answer includes a correct interpretation of all of the taxation issues. Issues associated with capital gains tax correctly calculate all of the relevant capital gains and or capital losses. It determines the correct overall net capital gain or capital loss for the current tax year. The answer also references all the relevant sections of the Income Tax Assessment Act.
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