You Decide: ACCT553
Federal Taxes & Management Decisions

MEMORANDUM

TO: Mr. John Smith & Mrs. Jane Smith
FROM: Allan Steynor
DATE: February 3rd, 2013
RE: Tax Advice for 2013

Dear Mr & Mrs Smith,

I want to take the opportunity for choosing my CPA office to help with your annual tax needs. We hope that we can provide you with a high quality and professional service and that you are happy with the advice you receive. I have written a brief memo on the initial discussion that we had addressing the issues that you both raised individually and together. If you have any further enquiries please do not hesitate to contact myself or one of my colleagues.

1. John Smith Tax Issues

a. $300,000 received in fees

The …show more content…

d. Tax benefits of establishing a separate jewellery business

Since you make a profit on the jewellery making you have an income which is taxable. If you plan to continue this in an ongoing basis there are clear tax benefits of establishing a separate business. This is because you will be able to deduct any expenses which are both necessary and ordinary in order to lower your overall taxable income. If you ever experience a loss you will also be able to use this to reduce your overall gross income, although this does not seem to be something that will affect you at this time.

e. Tax benefits if John was to invest the $15,000

This will only be a benefit if you decide to file together as “Married filing jointly tax return”. Since the money becomes deductible under Jane’s business purchases it would have more benefit than if it was left in the bank as taxable income.

f. Depreciation of vehicle and equipment

It would be absolutely fine for you to depreciate both the vehicle and jewellery making equipment. You may deduct the full purchase price of the qualifying equipment that was purchased during the current year. This is an incentive which has been introduced to encourage investment into your own company.

3. Separate or Joint Filing

This does depend on some of the previously discussed issues. If you sell the old house and expect a gain of over $250,000 then filing jointly will allow you to exclude up to $500,000. If John is looking to invest the