ACCT 540 Lecture 3: ACCT 573 Project 1

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beigesheep427

31 Mar 2019

School

Binghamton University

Department

Accounting

Course

ACCT 540

Professor

naan

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Document Summary

Javed and iraina tramp have recently inherited a lot of money (mid 8 figures). They have identified a 30 unit apartment building they would like to buy at a price of ,000,000. They like this building because it"s brand new with all new carpets, appliances, etc. It also has a parking lot for 30 cars. this property will be added to their other real estate holdings that keep them both busy for at least the full working day. They also heard that there is a limit on state tax deductions of ,000, but that"s personal, not business. For each of your suggestions, please provide authoritative sources allowing for tax savings. They like to see that. if you have any questions, they have set up a discussion board for that purpose. Be warned: sometimes they are rude, but they will respond. They don"t want to read what they don"t need to read.

Related Questions

Derek and Meagan Jacoby recently graduated from State Universityand Derek accepted a job in business consulting while Meaganaccepted a job in computer programming. Meagan inherited $75,000from her grandfather who recently passed away. The couple isdebating whether they should buy or rent a home. They located arental home that meets their needs. The monthly rent is $2,250.They also found a three-bedroom home that would cost $475,000 topurchase. The Jacobys could use Meaganâs inheritance for a downpayment on the home. Thus, they would need to borrow $400,000 toacquire the home. They have the option of paying two discountpoints to receive a fixed interest rate of 4.5 percent on the loanor paying no points and receiving a fixed interest rate of 5.75percent for a 30-year fixed loan.

Though anything could happen, the couple expects to live in thehome for no more than five years before relocating to a differentregion of the country. Derek and Meagan donât have anyschool-related debt, so they will save the $75,000 if they donâtpurchase a home. Also, consider the following information:

â¢	The coupleâs marginal tax rateis 25 percent.
â¢	Regardless of whether they buyor rent, the couple will itemize their deductions.
â¢	If they buy, the Jacobys wouldpurchase and move into the home on January 1, 2014.
â¢	If they buy the home, the property taxes for the year are$3,600.
â¢	Disregard loan-related fees notmentioned above.
â¢	If the couple does not buy a home, they will put their moneyinto their savings account where they earn 5 percent annualinterest.
â¢	Assume that all unstated costsare equal between the buy and rent option.

Required:

Help the Jacobys with theirdecisions by answering the following questions:

a.	If the Jacobys decide to rent the home, what is their after-taxcost of the rental for the first year (include income from thesavings account in your analysis)? (Round your intermediateand final answer to the nearest whole dollar amount.)

After-tax cost?____

b.	What is the approximate break-even point in years for paying thepoints to receive a reduced interest rate (to simplify thiscomputation, assume the Jacobys will make interest-only payments,and ignore the time value of money)? (Round your answer to1 decimal place.)

Break even point in years?________

c.	What is the after-tax cost (in interest and property taxes) ofliving in the home for 2014? Assume that the Jacobys' interest rateis 5.75 percent, they do not pay discount points, they makeinterest-only payments for the first year, and the value of thehome does not change during the year.

After tax cost?________

Assume that on March 1, 2014, the Jacobys sold their home for$525,000, so that Derek and Meagan could accept job opportunitiesin a different state. The Jacobys used the sale proceeds to (1) payoff the $400,000 principal of the mortgage, (2) pay a $10,000commission to their real estate broker, and (3) make a down paymenton a new home in the different state. However, the new home costonly $300,000. (Round your intermediate and final answersto the nearest whole dollar amount.)

d-1.

What gain or loss do the Jacobys realize and recognize on thesale of their home (assume they make interest only payments on theloan)?

Realized gain (loss)?______

Recognized gain (loss)?________

d-2.

What amount of taxes must they pay on the gain, if any?

Taxes payable on gain?________

Assume the same facts as in part (d), except that the Jacobyssell their home for $450,000 and they pay a $7,500 commission. Whateffect does the sale have on their 2014 income tax liability?Recall that the Jacobys are subject to an ordinary marginal taxrate of 25 percent and assume that they do not have any othertransactions involving capital assets in 2014.

Effect of loss on Jacoby's tax liability?______

amethystarmadillo770

Tax Strategies for Business Planning andInvestment

Tax Planning Case II: Entity Selection

Weâve received an inquiry from a client and weâd like you todraft a memorandum indicating how we should respond to these clientinquiries. The inquiry concerns the formation of a business and ouranalysis of the impact various entity types might have on thebusiness.

Please format your memorandum to Identify significant tax andnontax issues or concerns that may differ across entity types anddiscuss how they are relevant to the choice of entity decision forthe clientâs business. Include a brief summary of the inquiry, youranalysis of the inquiry, the issues posed, any relevantcomputations and your recommendations. Please include yourcomputations directly in your memorandum and do not attach them ina separate Excel spreadsheet.

Please format the memorandum as follows:

MEMORANDUM

To: Eugene Kilo, Smith TaxConsultants

From: [Team members, provide your own titles]

Re: Various Tax Matters

Date: [Applicable Date]

Martha Taylor is currently employed by the Maryland Chamber ofCommerce. While she enjoys the relatively short workweeks, sheeventually would like to work for herself rather than for anemployer. In her current position, she deals with a lot ofsuccessful entrepreneurs who have become role models for her.Martha has also developed an extensive list of contacts that shouldserve her well when she starts her own business.

It has taken a while but Martha believes she has finallydeveloped a viable new business idea. Her idea is to design andmanufacture cookware that remains cool to the touch when in use.She has had several friends try out her prototype cookware and theyhave consistently given the cookware rave reviews. With thisencouragement, Martha started giving serious thoughts to makingâCool Touch Cookwareâ (CTC) a moneymaking enterprise.

Martha had enough business background to realize that she isembarking on a risky path, but one, she hopes, with significantpotential rewards down the road. After creating some initial incomeprojections, Martha realized that it will take a few years for thebusiness to become profitable. After that, she hopes the skyâs thelimit. She would like to grow her business and perhaps at somepoint âgo publicâ or sell the business to a large retailer. Thiscould be her ticket to the rich and famous.

Martha, who is single, decided to quit her job with the stateChamber of Commerce so that she could focus all of her efforts onthe new business. Martha had some savings to support her for awhile but she did not have any other source of income. Martha wasable to recruit Linda and Mike to join her as initial equityinvestors in CTC. Linda has an MBA and a law degree. She wasemployed as a business consultant when she decided to leave thatjob and work with Martha and Mike. Lindaâs husband earns around$300,000 a year as an engineer (employee). Mike owns avery profitable used car business. Because buying andselling used cars takes all his time, he is interested in becomingonly a passive investor in CTC. He wanted to get in on the groundfloor because he really likes the product and believes CTC will bewildly successful. While CTC originally has three investors, Marthaand Linda have plans to grow the business and seek more owners andcapital in the future.

The three owners agreed that Martha would contribute land andcash for a 30 percent interest in CTC, Linda would contributeservices (legal and business advisory) for the first two years fora 30 percent interest, and Mike would contribute cash for a 40percent interest. The plan called for Martha and Linda to beactively involved in managing the business while Mike would notbe.

The three equity ownersâ contributions are summarized asfollows:

Martha Contributed	FMV	Adjusted Basis	Ownership Interest
Land (held as investment)	$120,000	$70,000	30%
Cash	$30,000

Linda Contributed
Services	$150,000		30%

Mike Contributed
Cash	$200,000		40%

Working together, Martha and Linda made the following five-yearincome and loss projections for CTC. They anticipate the businesswill be profitable and that it will continue to grow after thefirst five years.

Cool Touch Cookware

5-Year Income and Loss Projections

Year	Income (Loss)
1	($200,000)
2	($80,000)
3	($20,000)
4	$60,000
5	$180,000

With plans for Martha and Linda to spend a considerable amountof their time working for and managing CTC, the owners would liketo develop a compensation plan that works for all parties. Down theroad, they plan to have two business locations (in differentcities). Martha would take responsibility for the activities of onelocation and Linda would take responsibility for the other.Finally, they would like to arrange for some performance-basedfinancial incentives for each location.

To get the business activities started, Martha and Lindadetermined CTC would need to borrow $800,000 to purchase a buildingto house its manufacturing facilities and its administrativeoffices (at least for now). Also in need of additional cash, Marthaand Linda arranged to have CTC borrow $300,000 from a local bankand to borrow $200,000 cash from Mike. CTC would pay Mike a marketrate of interest on the loan but there was no fixed date forprincipal repayment.

emeraldbadger318

home / study / business / accounting / accounting questions andanswers / Carol Is A Single Mother Who Owns A Wholesale Auto PartsDistributorship. The Business Is Organized ... Question: Carol is asingle mother who owns a wholesale auto parts distributorship. Thebusiness is organiz... Carol is a single mother who owns awholesale auto parts distributorship. The business is organized asa sole proprietorship. Her business has advanced, and she can nolonger devote the time necessary to do her own tax return. Becauseshe always has prepared her own return, Carol is familiar with mosttax rules applicable to her business and personal affairs. However,she has come to you for advice with respect to a number of itemsshe paid during the current year. You are to determine whether shecan take a deduction for the expenditures in the current year. A,Carol purchased a small building on March 2 to use as a warehousefor her auto parts inventory. To purchase the building, sheborrowed $180,000 on a 30-year loan and paid $20,000 in additionalcash. Carol also incurred $3,200 in legal and other fees topurchase the building. The bank charged her $3,600 in points(prepaid interest) to obtain the loan. After acquiring thebuilding, Carol spent an additional $25,000 to renovate it for useas a warehouse. The $25,000 included $8,000 for painting. B, Carolhad her office building painted at a cost of $14,000 and paid$6,000 to have it landscaped. She paid for the building renovationin part a and the office building work by borrowing $60,000 onApril 1 at 7% interest. (See part f for details of the interestpayments.) C, On April 1, Carol prepaid a 1-year fire insurancepolicy on her 2 buildings. The policy cost $1,500, and the insurerrequired the prepayment. On September 1, Carol prepaid a $5,000,2-year maintenance contract on the buildings. D, Carol started aself-insured medical reimbursement plan for her employees thisyear. Based on actuarial assumptions, she deposited $13,500 in afund to pay employeesâ medical expenses. Actual payments from thefund totaled $11,200. E, Carol purchased a new automobile costing$32,000. She can document that her business use of the automobilecame to 90% and that her out-of-pocket operating costs totaled$3,600. F, Carol paid the following interest on business-relatedloans: Warehouse $15,300 Office building 4,000 Renovation loan5,400 The renovation loan was for $60,000. Because she spent only$45,000 renovating the new building and painting and landscapingthe old one, she used the additional $15,000 to purchase city ofSeattle bonds with a yield of 6%. G, Carol became active inpolitics and contributed $1,000 to the presidential campaign of anindependent candidate. She made the contribution because shebelieved that, if elected, the candidate would institute policiesbeneficial to her business. The candidate lost the election andimmediately started a grassroots lobbying organization. The purposeof the organization is to keep track of elected officialsâ campaignpromises and report to the public when they vote contrary to theirstated campaign promises. Carol paid $1,600 in dues to join thelobbying organization. H, Carolâs oldest son began college duringthe current year. She paid his tuition and living expenses, a totalof $13,300, out of the companyâs checking account. During thesummer, her son worked for the business, and Carol paid him $4,300,the same amount she paid other college students working during thesummer. Because she consults her son from time to time on theoperation of the business, she thinks that at least some of the$13,300 should be deductible. I, Carol has always itemized herdeductions. This year, her mother and father retired and could nolonger afford the mortgage interest and property taxes on theirhome. Rather than have them sell the house, Carol made the paymentsfor them. They received a statement from their bank indicating thata total of $8,125 in mortgage interest and taxes were paid in thecurrent year. Carol knows that mortgage interest and property taxesare deductible as itemized deductions and would like to add them toher personal interest and property tax payments. J, Because of thesuccess of her business, Carol has received many offers to investin various business ventures. One offer was to establish a chain ofnursing homes in Florida. Carol spent two weeks in Floridaevaluating the prospects of the proposed venture and incurred costsof $2,100. After careful consideration, she decided the venture wastoo risky and decided not to expand into the health-carebusiness.

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ACCT 540 Lecture 3: ACCT 573 Project 1

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