Improving Corporation’s Tax Position
The Northways updated their exterior windows in their primary residence last year. The new windows exceed the energy efficiency criteria established by the International Energy Conservation Code (IECC) for the climate zone. They have brought the manufacturer’s certification along. The cost of the new windows total $4,700. John’s Bargain Books sold $317,430 of merchandise. They had a beginning inventory of $39,250 and an ending inventory of $44,300. All other expenses/transactions remained the same except John does not elect to take §179 expensing or additional first year depreciation on his office furniture purchase; but does elect to take the §179 deduction for the computer system. He made quarterly estimated Federal income tax payments of $1,500 on January, April, June and September, 2020 ($6,000 in total payments). Michigan estimated income tax payments were $400 per quarter or $1,600 for the year.
The Northways sold 1,000 shares of Capp Corp stock they had received as a wedding present on June 25, 2002. The stock was worth $8.50 per share in January but had had dropped to $6 per share on September 3 when the Northways sold the stock on that date. They had been given the stock by John’s father, who paid $11.50 per share for it in 1974. Its value at the date of gift was $18.50 per share. No gift tax was paid on the gift. (The Northway’s basis is $11.50 per share.) John has 3 employees and is contemplating the Affordable Health Care Act provisions and the effect they will have on his business operations. He wonders how to keep his business profitable, how to best take advantage of available tax deductions and credits and how they can plan more efficiently to minimize their tax burden while increasing their wealth. He is expecting his gross receipts to grow by 5% next year. John’s brother, Mike, would like to claim mom Beverly next year on his tax return.
The children are getting older and Phyllis is wondering how changes in the family composition and tax law ACCT 315 FALL 21 Intuit Tax Software Problem changes might affect their 2021 taxes and what steps they can take now to reduce their tax liability next year. What advice can you offer the Northways on how they can improve their current tax situation and improve their tax planning process for next year? Compose a 2 page tax memo or a client letter to the Northways enumerating all of your tax recommendations starting with the most significant challenges/recommendations and the reasons why the proposed changes make sense.
