Tax Research Methodology

Week 1 

The tax research methodology is a five-step process, and the first step involves investigating and understanding the facts. These facts can either be open or close. Open facts are facts that are yet to occur, while closed are ones that have occurred. The best way of getting the facts is by interviewing the client and assessing the client’s documents for further information. The second step is to identify the concerning client issues (Tax Justice advocacy, n.d). As a tax professional, I will combine my knowledge of tax with the facts to determine the critical tax issues. The third step involves locating the relevant authorities concerned with tax issues and services (Tax Justice advocacy, n.d). The fourth step involves examining the identified tax authorities to ensure that I am well conversant with their application of the research problem. The final step consists of the documentation and communication of results to the client. (Tax Justice advocacy, n.d). Documentation often comes to inform of a research memo with the full details of the tax research. A tax practitioner has the responsibility to ensure that he submits accurate and transparent tax returns to his client. Moreover, he should ensure that the tax returns are handled with the utmost care, and they are submitted to the client on time. A tax practitioner should ensure the confidentiality of his client’s tax returns is upheld. A tax practitioner should ensure that he is up to date with any tax laws changes to appropriately advise his client. 

Week 2 

I would advise the married couple to report their daughter and mother as dependents in their tax file returns as it comes with its benefit. One significant benefit associated with increasing the number of dependents is that it increases the amount withheld by the couple. By increasing the amount of salary withheld, the married couple can significantly benefit from tax credits, significantly reducing the total tax-deductible (Tax Policy Centre, n.d). Besides, it is greatly beneficial for the married couple to file their tax returns jointly. One benefit of this is that it can reduce their tax bracket, making them pay less compared to what they would have paid when they were single. Another great advantage is that it may help them financially if one loses employment as he will still contribute to his retirement account through their joint income. Jointly filing tax returns is also beneficial as it will allow them to have more charitable contribution deductions, which will significantly reduce their taxable income. Moreover, it will enable them to choose valuable work benefits, ultimately increasing the couple's tax savings. Therefore, it will be more prudent for the married couple to file their tax returns jointly as compared separately with all these benefits. 

Week 3 

Constructive receipt doctrine is an accounting principle that applies to taxpayers to pay their taxes on income even though their income has not been received (Wood, 2017). This doctrine helps in preventing taxpayers from consciously delaying their income receipts for them to have direct control over the year in which they report their income for income tax purposes. It states that the income, although not in the taxpayer’s possession it is taxable in the year when it was credited to the taxpayer’s account or when it was made available to the taxpayer (Wood, 2017). An example is where an employee receives his paycheck at the end of the year. According to constructive receipt doctrine, he must report the salary earned to the relevant tax authorities as income for that year, even though he deposited the check the following year. The claim of right doctrine states that if a taxpayer receives payments under a claim of right, they must be included in the taxpayer's gross income (IRS, n.d). Moreover, it gives taxpayers the right to claim the credit on taxes whose salaries were not received during the former year. However, for any income to fall under this doctrine, it should be legal, and there should be a receipt of cash that makes up the income (Wood, 2017). An example is when a taxpayer reports more income in his previous year, his only tax obligation of the following year is to credit taxes of that income or pay a less amount of tax. 

Week 4 

Adjustable Gross Income (AGI) refers to income calculated from your gross income after deductions are made for tax purposes (Tax Foundation, n.d). Itemized deduction is one of AGI's deductions, which includes any consumption of products and services that can be subtracted from the AGI to reduce the amount of tax paid by the taxpayer. An example of an itemized deduction is the home mortgage interest (Tax Foundation, n.d). A taxpayer can deduct his mortgage interest in a hypothetical tax situation if his mortgage loan is less than $ 750,000. However, the tax acts and job acts had a significant effect on the mortgage limit loan as it reduced it from the previous limit of $ 1,000,000 to $ 750,000. This negatively affected taxpayers as many of them were locked out of this deduction. 

References 

IRS. (n.d.). Site index search . Internal Revenue Service | An official website of the United States government. https://www.irs.gov/site-index-search?search=1040+INSTRUCTIONS&field_pup_historical_1=1&field_pup_historical=1 

Tax Justice Advocacy. (n.d.). Doing your tax research . Tax Justice Advocacy | A Toolkit for Civil Society. https://taxjusticetoolkit.org/doing-your-tax-research/ 

Tax foundation. (n.d.). What is adjusted gross income (AGI)? Tax Foundation. https://taxfoundation.org/tax-basics/adjusted-gross-income-agi/ 

Tax Policy center. (n.d.). What are marriage penalties and bonuses? Tax Policy Center. https://www.taxpolicycenter.org/briefing-book/what-are-marriage-penalties-and-bonuses 

Wood, R. (2017, February 1). What lawyers should know about taxes, constructive receipt, and structured fees . American Bar Association. https://www.americanbar.org/groups/business_law/publications/blt/2017/02/01_wood/