🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Accounting
1
answer
0
watching
102
views

Employer provides Employee and Spouse and Child a residence on Employer’s business premises, having a rental value of $15,000 per year but charging Employee only $6,000.

What result if the nature of Employee’s work does not require Employee to live on the premises as a condition of employment?

What result if Employer and Employee simply agreed to a clause in the employment contract requiring Employee to live in the residence?

What result if Employee’s work and contract require Employee to live on the premises and Employer furnishes Employee and family $6,000 worth of groceries during the year?

What result if Employer transferred the residence to Employee in fee simple in the year that Employee accepted the position and commenced work? Does the value of the residence constitute excluded lodging?

Watch
1
answer
0
watching
102
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Deanna Hettinger
Deanna HettingerLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

You have recently been hired as the business manager of a dentaloffice. Your employers, the two dentists that own the practice, areconsidering a number of changes to their practice. Using theinformation you’ve learned in this course and generally in yourdegree and the facts provided on the next page, please draft ananswer to each of the questions provided on the next page. Youranswer should be a minimum of three pages in length (though it maybe considerably longer) and should address each of the providedquestions. Please explain your work and any calculations that youcomplete as part of that work. Finally, for all questions butquestion 1, please make the following assumptions: 1. The federalincome tax rate is 39.6%. 2. The C-corporate income tax rate is35%. 3. The Self-Employment tax rate is 15.3%. 4. The SocialSecurity tax rate is 6.2% (employer) and 6.2% (employee). 5. TheMedicare tax rate is 1.45% (employer) and (1.45 (employee). 6. TheMedicare Surtax does apply. 7. The maximum Section 179 amount is$100,000 per year. 50% bonus depreciation is available. If you makeany other assumptions in your case analysis, please notate them andexplain your reasoning.   Currently, the business is organized as apartnership. Each of the dentists takes a $20,000 monthly draw fromthe business as a guaranteed payment. They have a staff dentist whois an employee of the practice who is paid $140,000 per year. Inthe current year, the business’s profits after payment of theguaranteed payments are expected to be an additional $800,000,which is divided equally between the owners. Currently the businessreports its taxes on the cash basis. The business is located in arural renewal community; however, the business does not currentlycomplete any paperwork relating to the work opportunity tax credit.The business owners are grateful the small community in which theyhave made their business and regularly donate 20% of the business’snet profit to local religious and charitable organizations. Thebusiness owners would like to upgrade their X-Ray equipment toexpand the business’s offerings. They are proposing to spend$400,000 on the new equipment and expect the equipment to generateincremental earnings of $80,000 a year for each of the next 8years. 1. Should the business purchase the new X-Ray equipment?What is the Net Present Value of the X-Ray investment assuming a12% cost of capital? How does depreciation impact the Net PresentValue?

You have recently been hired as the business manager of a dentaloffice. Your employers, the two dentists that own the practice, areconsidering a number of changes to their practice. Using theinformation you’ve learned in this course and generally in yourdegree and the facts provided on the next page, please draft ananswer to each of the questions provided on the next page. Youranswer should be a minimum of three pages in length (though it maybe considerably longer) and should address each of the providedquestions. Please explain your work and any calculations that youcomplete as part of that work. Finally, for all questions butquestion 1, please make the following assumptions:

1. The federal income tax rate is 39.6%.

2. The C-corporate income tax rate is 35%.

3. The Self-Employment tax rate is 15.3%.

4. The Social Security tax rate is 6.2% (employer) and 6.2%(employee).

5. The Medicare tax rate is 1.45% (employer) and (1.45(employee).

6. The Medicare Surtax does apply.

7. The maximum Section 179 amount is $100,000 per year. 50%bonus depreciation is available.

If you make any other assumptions in your case analysis, pleasenotate them and explain your reasoning.

Currently, the business is organized as a partnership. Each ofthe dentists takes a $20,000 monthly draw from the business as aguaranteed payment. They have a staff dentist who is an employee ofthe practice who is paid $140,000 per year. In the current year,the business’s profits after payment of the guaranteed payments areexpected to be an additional $800,000, which is divided equallybetween the owners.

Currently the business reports its taxes on the cash basis. Thebusiness is located in a rural renewal community; however, thebusiness does not currently complete any paperwork relating to thework opportunity tax credit. The business owners are grateful thesmall community in which they have made their business andregularly donate 20% of the business’s net profit to localreligious and charitable organizations. The businessowners would like to upgrade their X-Ray equipment to expand thebusiness’s offerings. They are proposing to spend $400,000 on thenew equipment and expect the equipment to generate incrementalearnings of $80,000 a year for each of the next 8 years.

The owners are considering alternate organizationalstructures.What structure that we learned about will yield thelowest total tax burden for both the business and the owners?Howmuch will that tax burden be and what taxes will it comprise?Whatare the owners’ and the business’s marginal tax rates under yourrecommended structure?

61-David R. and Ella M. Cole (ages 39 and 38,respectively) are husband and wife who live at 1820 Elk Avenue,Denver, CO 80202. David is a regional sales manager for WrenIndustries, a national wholesaler of plumbing and heating supplies,and Ella is a part-time dental hygienist for a chain of dentalclinics.

David is classified by Wren as a statutory employee withcompensation for 2014 (based on commissions) of $95,000. He isexpected to maintain his own office and pay for all businessexpenses from this amount. Wren does not require him to render anyaccounting as to the use of these funds. It does not withholdFederal and state income taxes but does withhold and account forthe payroll taxes incurred (e.g., Social Security and Medicare).The Coles are adequately covered by Wren’s noncontributory medicalplan but have chosen not to participate in its §401(k) retirementplan.

David’s employment-relatedexpenses for 2014 are summarized below:

Airfare $8,800

Lodging 5,000

Meals (during travelstatus) 4,800

Entertainment 3,600

Ground transportation (e.g.,limos, rental cars, and taxis) 800

Businessgifts 900

Office supplies (includepostage, overnight delivery, andcopying) 1,500

The entertainment involvedbusiness meals for purchasing agents, store owners, and buildingcontractors. The business gifts consisted of $50 gift certificatesto a national restaurant. These were sent by David during theChristmas holidays to 18 of his major customers.

In addition, David drove his2012 Ford Expedition 11,000 miles for business and 3,000 forpersonal use during 2014. He purchased the Expedition on August 15,2011, and has always used the automatic (standard) mileage methodfor tax purposes. Parking and tolls relating to business use total$340 in 2014.

When the Coles purchased their present residence inApril 2011, they devoted 450 of the 3,000 square feet of livingspace to an office for David. The property cost $440,000 ($40,000of which is attributable to the land) and has since appreciated invalue. Expenses relating to the residence in 2014 (except formortgage interest and property taxes; see below) are asfollows:

Repairs andmaintenance900

Painting office area; arearugs and plants (in the office)1,800

In terms of depreciation, theColes use the MACRS percentage tables applicable to 39-yearnonresidential real property. As to depreciable property (e.g.,office furniture), David tries to avoid capitalization and useswhatever method provides the fastest write-off for taxpurposes.

Ella works part-time as a substitute for whicheverhygienist is ill or on vacation or when one of the clinics isparticularly busy (e.g., prior to the beginning of the schoolyear). Besides her transportation, she must provide and maintainher own uniforms. Her expenses for 2014 appear below.

State and city occupationallicenses380

Professional journals andmembership dues in American Dental

HygieneAssociation340

Correspondence study course(taken online) dealing with teeth whitening

Ella’s salary for the year is$42,000, and her Form W-2 for the year shows income taxwithholdings of $4,000 (Federal) and $1,000 (state) and the properamount of Social Security and Medicare taxes. Because Ella is apart-time employee, she is not included in her employer’s medicalor retirement plans.

Besides the items already mentioned, the Coles had thefollowing receipts during 2014.

Interest income-

State of Colorado generalpurpose bonds$2,500

IBM bonds800

Wells Fargo BankCD1,000$4,500

Federal income tax refund foryear 2013510

Life insurance proceeds paidby Eagle Assurance

Inheritance of savingsaccount from Sarah Cole 50,000

Sales proceeds from twoATVs9,000

For several years, theColes’s household has included David’s divorced mother, Sarah, whohas been claimed as their dependent. In late November 2014, Sarahhad a life insurance policy and savings account (with David as thedesignated beneficiary of each). In 2013, the Coles purchased twoATVs for $14,000. After several near mishaps, they decided that thesport was too dangerous. In 2014, they sold the ATVs to theirneighbor.

Additional expenditures for 2014 include:

Funeral expenses forSarah$4,500

Real property taxes onpersonal residence$6,400

Colorado state income tax due(paid in April 2014

For tax year2013)3106,710

Mortgage interest on personalresidence6,600

Paid churchpledge2,400

Contributions to traditionalIRAs to Ella and David

($5,500 +$5,500)11,000

In 2014, the Coles madequarterly estimated tax payments of $1,400 (Federal) and $500(state) for a total of $5,600 (Federal) and $2,000(state).

Part 1- TaxComputation

Using the appropriate formsand schedules, compute the Coles’s Federal income tax for 2014.Disregard the alternative minimum tax (AMT) and various educationcredits as these items are not discussed until later in the text(Chapters 12 and 15).

Relevant Social Securitynumbers are:

DavidCole123-45-6788

EllaCole123-45-6787

SarahCole123-45-6799

The Coles do not want tocontribute to the Presidential Election Campaign Fund. Also, theywant any overpayment of tax refunded to them and not applied towardnext year’s tax liability. Suggested software: H&R BLOCK TaxSoftware.

Part 2-Follow-UpAdvice

Ella has always wanted topursue a career in nursing. To this end, she has earned asubstantial number of college credits on a part-time basis. WithSarah no longer requiring home care, Ella believes she can nowcomplete her degree by attending college on a full-timebasis.

David would like to know howElla’s plans will affect her income tax position.

Specifically, he wants toknow:

How much Federal income tax they will save if Ella quitsher job.

Any tax benefits that might be available from cost ofthe education.

Write a letter to Davidaddressing these concerns. Note: In making your projections, assumethat David’s salary and expenses remain the same. Also disregardany consideration of the various educational tax credits as theseare not discussed until Chapter 12.

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in