Recommendations for Calvin on investing in the Stock Market
Investment in the stock market is a potentially profitable venture worth implementing. Considering interest-bearing securities and dividend-paying stock, it prudent to consider that dividend investing provides wealth accumulation methods with better inflation protection than bonds. To earn optimally, getting the best dividend-paying firms is a crucial ingredient. Companies to look for include those with long-term profitability and earnings growth expectations of between 5-15%. Calvin should avoid firms that have a more than 2.0 debt-to-equity ratio. Additionally, beyond the fundamentals of a potential company to buy stocks, it’s necessary to ensure the firm's positioning to thrive. The sector trends can help give a holistic projection of the company’s future performance projection despite the current status. Calvin should also avoid investing in debt-ridden companies as they will tend to use the funds for paying off debts instead of dividend payment programs. Long-term earning should be a primary consideration of dividend-paying companies by applying strong cash, low-earning expectations. The companies to invest in should have at least growth of 15% or more and long-term expectations between 5-15% (Brian, 2020) . The TCJA affects stock investment in its reduction of corporate tax from 35% to 21 %. The implication is firms can use tax-related cash in repurchasing stocks. TCJA will increase dividends and stock repurchases a development Calvin should consider in his stock investment consideration.
Week 6: “Helping a Business Owner with a Tax Problem”
Potential Tax Consequences and Recommendations for Kenneth
Kenneth's potential tax consequences are that the seven days trip will be considered a business trip as the IRS counts duration in days and requires that one spends most time of the trip for business purposes to qualify for a business trip. In Kenneth’s case, spending five days for business and 2 visiting his family will thus be eligible for a business trip and deducted from the company as an expense. He needs to have traveled away from his tax locale (away from where the business is based). Kenneth needs to report his food truck's damage and theft of his grills to the local authorities and file a claim with the insurance company. He is also eligible to write a portion of the loss of his federal income taxes as it qualifies under the law's requirements. Kenneth should maintain all records related to expenses, income, deductions, and income accurately and consistently.
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Components of TCJA and Impacts on Kenneth’s case
The TCJA (IRS Notice 2018-76) still provides for deductions for meals when on business trips but only up to 50 % of meals and beverage costs as a business expense for means that are “ordinary and necessary” and only incurred in the course of business (Brian, 2020) . However, for the loss of his two grills, Kenneth can no longer as from 1st January 2018 deduct the theft on his taxes as it’s not due to federally declared disaster according to the changes in TCJA.
Week 7: “Business Expenditures and Deductions”
How Avery can Handle Start-Up Costs
The expenses of starting a business and sustaining can be overwhelming, especially if there are unforeseeable expenses incurred, as is the case of Avery. Establishing a business to generate profit will require lots of sacrifices and affect relationships, time, energy, and physical resources. It is vital to look around for any unused assets to cash or use for business purposes in managing the capital and the business assets. Working smart and considering automation will make work easy for a start-up that is usually labor-intensive and demanding. Instead of employing for every role, it is prudent to hire people who can take on two-three roles at the early stages of the business to cut down on expenses. Avery should consider working to ease the wage bill. The company requires employees to keep running. Instead of focusing on having permanent employees, outsourcing some jobs that are either seasonal or that would cost more for employing a permanent employee, outsourcing can help ease the burden. Learning and practicing good management is necessary for business success. Other additional work-around for start-ups like Avery’s are using affordable branding solutions, using money wisely, managing cash flow well, and getting affordable suppliers.
Assets that Avery Can Depreciate
Depreciable property has to be eligible for tax and accounting. According to the IRS (Internal Revenue Service) rules, Avery can appreciate the property that meets three main conditions:
The property should be for business purposes or income-producing activity.
The property should be able to last for more than a year in a useful state.
The depreciable property must have a determinable useful life.
Avery has to be the owner of the item to depreciate.
The property Avery can depreciate the three large tables and the machine that moves the food to shelve for storage, among other assets that meet the four conditions. Other examples of property he could depreciate are vehicles, manufacturing machinery, residential or commercial property, and equipment such as computers. However, IRS states that property such as land, current assets (receivables, cash in hand, among others), personal property that is not being used for business, leased property, and collectibles cash as coins and memorabilia do not depreciate.
The Kind of Records for Avery to Maintain
The business requires documentation of every single purchase made both for sale and business operational use. The purchases should properly document and categorized as either an asset or an expense. Avery should keep records of income, deductions, expenditure, and credits. The income records could comprise cash sales, and capital introduced cash from debtors, loans, or grants VAT repayments and other income. The expenditures will include cash purchases, licenses, drawings, VAT, rent, heat and light, postage, stationery, advertising, professional fees, motor and travel expenses, telecommunications, rates or water rates, tax, PAYE, wages, and cash purchases. Avery should also keep records of bank and credit card statements, canceled checks, receipts, bills, invoices, financial statements from the bookkeeper, W2 and 1099 forms, proof of payments, previous tax returns, and any other documents that support items of expenditure, credits, income or deduction.
TCJA Changes that Affect the Business
The Tax Cut and Jobs Cut (TCJA) of 2017 affects Avery business such that corporate tax was reduced from 35 to 21 % (Müller et al., 2019). The TCJA also repealed the previous corporate alternative minimum tax. As a new business, Avery’s business will also benefit from the TCJA changes of the current 100% bonus depreciation for new investment purchases of qualified property. TCJA disallowed business interest deduction for net interest over 30% of the business income, with an exemption for enterprises with gross receipts of $25 million and less. TCJA limits net operating losses' deductions to 80% of the taxable income, with unused losses not carried back but allowed to be carried forward indefinitely.
Week 8: "Tax Strategies for Business-Owned Properties"
Explanation of the Concepts to Don
In business, a loss is a decrease in the firm’s or individual’s net income. An ordinary loss occurs when in everyday business operations, expenses exceed income. On the contrary, capital losses occur when one sells capital assets, for instance, bonds and stock, for less than what they bought at (the initial cost). Ordinary losses and capital losses receive different tax treatment under the law. A loss is realized upon the selling of an asset at a loss, while a loss becomes recognized when the loss incurred can be applied against one’s taxes.
Recommendation for Don and Impact of TCJA
The current TCJA effective from 1st January 2018 provides of deduction limiting of net operating losses to 80% taxable income, unlike before when it was fully deductible. TCJA provides for carrying forward net operating losses indefinitely with no unused losses allowed to be carried back (Kess et al., 2018). The carrying forward means that Don can wait to benefit from the recognized loss in the future but cannot carry back.
References
Brian, S. (2020). Taxation of Individuals and Business Entities. McGraw Hill.
Kess, S., Grimaldi, J. R., Revels, J. A., & Lauletta, T. K. (2018). Tax and Financial Aspects of Casualty and Disaster Losses under the Tax Cuts and Jobs Act. The CPA Journal 88(10) , 68-71.
Müller, S. D., Påske, N., & Rodil, L. (2019). Managing ambidexterity in start-ups pursuing digital innovation. Communications of the Association for Information Systems, 44(1) , 18. https://doi.org/10.17705/1CAIS.04418.
