Memorandum
To: Ms. Emma Shire
Date: April 27, 2019
From:
Subject: Personal Tax Planning
Introduction
This memo seeks to guide Ms. Emma Shire on her questions concerning personal, partnership, and corporate tax situation. In solving the issues and recommending the necessary course of action that will be in compliance with regulations and also lead to the best economic resolution for her, I will apply income tax laws.
Summary of Facts
Based on the evidence provided, I have created your Federal Income Tax Return for the 2014 taxable year. The facts of the brief are that you are a divorced single breadwinner of the family who has two children – Kelly Shire and Jordan Shire. You get child support that is nontaxable. You work as a human resource manager at Clifford Company. Also, you in a 50/50 partnership in a local clothing business.
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As of 2014, you received wages amounting to $65,000 from Clifford Company. Other benefits included interest income from savings saved with two financial institutions amounting to $1,750. Besides, during the year, you received qualifying dividends amounting to $1,718 in from 3 different companies and also received a short-term capital gain which amounted to $2,500, associated with the investment at Ace Corporation. Lastly, she received a 2013 tax refund $900 from Maryland. Further, in 2014 you made payments of $1,500 in estimated federal income taxes, and a total of $10,500 was withheld from your earnings at the company. Your total federal tax liability amounted to $1,919.
Issues
Applying the Statement by AICPA on Standards for Tax Services, I have the following mandates to meet for you as my client, which are stated as follows:
Enlighten the client on any possible adverse effects of a tax return position
Update the customer on how to evade penalty via disclosures
Inform the customer about when specific deductions have certain conditions to satisfy
Inform the customer about when data provided looks incomplete, inappropriate or inconsistence on its appearance (AICPA, 2010).
Analysis
From a close look at the issue, there are various areas in which a more efficient tax plan would have been useful. First, your buyout and selling of the stock of Ace Corporation were categorized as short-range since you were incapable of holding the stocks for the entire tax year. Nevertheless, you had shares which were 23 less of realization of the limit for the attained gain be able to attract a tax of 15 percent which was not your fixed rate of federal tax. The second point of concern is the qualifying dividends. I recommend that as an element your general tax plan, each investment should be held in an IRC and be classified under tax-deductible tax or deferred account. To reduce taxable incomes that are not utilized now, you have a range of options. Such comprises a 529 college savings plan, IRA and a self-401(k) plan. In these incidences, dividends may be reinvested, and it has no impact on the yearly limit of contribution (Walker, 2015).
Conclusion
I would suggest that you contact me in case you have any questions. Also, I will spare some time to have a personal meeting with you to discuss tax-advantaged options of investments. Several trustworthy investment brokers could act as a custodian. Our company has not partnered with any specific investment brokerage agency, although you can get information on each from SEC.Gov.
TAX MEMO II
Memorandum
To: Ms. Emma Shire
Date: April 27, 2019
From:
Subject: Tax Memo II Corporation Issue
Introduction
This memo responds to your issue concerning the tax impacts of Clifford Company disposing of the machines. To be able to recommend the best course of action for your problem, I made consultations with IRC (Internal Revenue Code) provisions and applicable Treasury Guidelines within the Internal Revenue Code (Pope, Anderson & Kramer, 2001).
Issue
The Company wants to issue a non-liquidating property distribution (dividend) of three of its machines, although the company does not require just two of them – thus it crucial to assess if a single machine sought to be sold or distributed, in the future.
Relevant Law
According to IRC, fair market value is that value of the distribution date. Further, IRC asserts that a distribution which is a dividend should be incorporated in the gross revenue. Similarly, IRC describes dividends as distributions which are made out of Earnings and Profits (E&P) collected after February 28, 1913, or Earnings and Profit from the present taxable year (Viswanathan, 2015) . Further, it points out that each distribution is deducted from Earnings and Profit from the present year, then deducted from accumulations of previous years.
Conclusion
Since Clifford Company does not need two of its machines, and a loss incurred from distributing the other machine is not deductible except when has been sold, it is thus suggested that machine A ought to be disposed of at $27,000, which is its fair market value. The net gain of machine A amounts to $7,000 which should be added back into Earnings & Profit. Machine B must be sold for $20,000, which is its fair make value and nothing ought to be added to the Earnings & Profit. Besides, Machine C ought to be sold for $12,000 its fair market value, and subsequently, the earnings are disseminated – the consequential loss amounting to $8,000 could thus be deducted.
References
AICPA. (2010). Statements on Standards of Tax Preparation. New York, New York, United States of America. Retrieved from AICPA.Org
Pope, T. R., Anderson, K. E., & Kramer, J. L. (2001). Prentice Hall's Federal Taxation 2001: Comprehensive . Prentice Hall.
Viswanathan, M. (2015). The Hidden Costs of Cliff Effects in the Internal Revenue Code. U. Pa. L. Rev. , 164 , 931.
Walker, J. (2015, April). US Tax Code Online. USA. Retrieved from https://www.fourmilab.ch/ustax/www/t26-A-1-D-I-A-408.html
