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Deferred Assets and Liabilities

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Deferred Assets and Liabilities

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Overview

Complete a four-part assessment in which you will compute values, prepare journal entries, and provide written explanations.

Note: An accounting cycle requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order.
Companies must present financial information to the investment community that provides a clear picture of present and potential tax obligations and tax benefits.

By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

Competency 1: Define financial accounting conventions to support practice as a professional in the field.

*Apply tax rates to temporary differences.

*Analyze carryback and carryforward issues.

* Competency 3: Evaluate economic resources for an enterprise.

* Apply procedures for a capital lease.* Apply procedures for a sales-type lease.

Deferred Assets and Liabilities

Context

Companies spend a considerable amount of time and effort to minimize their income tax payments—and with good reason. Income taxes are major costs of doing business for most business organizations, regardless of the form of ownership.

Leasing of an asset has been around for many years, especially in the private sector. Individuals have utilized this form of asset acquisition for the purchase of realty, personal property, and even services. It has allowed them to acquire assets for little or no money down, use the asset for a determinable period of time, and then simply return the asset and terminate the lease agreement.

Today, leasing of capital assets is the fastest growing form of capital investment for corporations. It allows businesses to acquire large high-dollar assets with little or no responsibility for their maintenance and allows them to trade those assets in for newer models at the end of the lease. Consequently, accounting procedures for handling these transactions has undergone significant change over the last 25 years.

Questions to Consider

As you prepare to complete this assessment, you may want to think about other related issues to deepen your understanding or broaden your viewpoint. You are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of your professional community. Note that these questions are for your own development and exploration and do not need to be completed or submitted as part of your assessment.

* What are the guidelines for determining the most advantageous type of lease for an asset?* What is the advantage of an operating lease versus a capital lease?* What is the difference between a financial lease and a capital lease?
Resources

Deferred Assets and Liabilities

FACTORS THAT IMPACT TAXES

Economic factors: Microeconomic factors (e.g., elasticity, type of entity)Macroeconomic factors (e.g., inflation, political systems)
Social factors:Demographics (e.g., aging population, birth rates)Standard of living (e.g., crime rates, education)Savings rates (e.g., incentives, cost of living)
Political factors:Government revenue (e.g., income tax, sales tax)Type of tax (e.g., progressive, regressive)Income redistribution (e.g., political system, types)
Legal/regulatory factors:Justification for tax system (e.g., tax avoidance, tax evasion)Types of entities (e.g., partnership, corporation)Economic (e.g., employees vs. subcontractors, insurance deduction)
Emerging trend factors:Economic (e.g., command vs. market economies, trade agreements)Technology (e.g., information access, compliance)Intangible taxation (e.g., changing laws, changing regulations)

CREDITS

Subject Matter Expert:Timothy Price

Interactive Design:Tara Schiller

Instructional Designer: JodiRae Foss

Project Manager:Lon Wiessenberger

Laux, R. C. (2013). The association between deferred tax assets and liabilities and future tax payments. The Accounting Review, 88(4), 1357–1383. Liabilities/Equities – Chapter 13.* This chapter reviews accounting for leases.
Harrington, C., Smith, W., & Trippeer, D. (2012). Deferred tax assets and liabilities: Tax benefits, obligations and corporate debt policy. Journal of Finance and Accountancy, 1–18. Retrieved from http://www.aabri.com/manuscripts/121240.pdf
Spiceland, J. D., Sepe, J. F., Nelson, M. W., & Thomas, W. B. (2016). Intermediate Accounting (8th ed.). New York, NY: McGraw-Hill Education.Chapter 15, “Leases,” pages 852–931.This chapter focuses on issues related to liabilities arising in connection with leases, and in particular those that produce such debtor/creditor relationships, referred to as capital leases. Pay particular attention to leases that do not produce a debtor/creditor relationship, but instead are accounted for as rental agreements.
Chapter 16, “Accounting for Income Taxes,” pages 932–995.This chapter presents accounting issues that focus on accounting and reporting for the effects of income taxes, particularly defining and illustrating temporary differences which are the basis for recognizing deferred tax assets and deferred tax liabilities.

Deferred Assets and Liabilities

Assessment Instructions

Note: Do not proceed with this assessment until you have reviewed faculty feedback on Assessment 4.
This assessment has four parts. The Assessment 5 Data Sheet contains the necessary information for all four parts. Record your answers in the Assessment 5 Template. Submit the completed template for this assessment. Both documents are linked in the Resources under the Required Resources heading.

Imagine your boss has handed you four client files to complete by EOD (end of day.) However, several of the clients require written explanations of your reasoning.

Part 1: Temporary Differences
Use the information for Part 1 in the Assessment 5 Data Sheet to complete the following:

Prepare the journal entry to record income tax expense, deferred income taxes, and income tax payable for 2015, 2016, and 2017.
Assuming there were no temporary differences prior to 2015, indicate how deferred taxes will be reported on the 2017 balance sheet. Sharp’s product warranty is for 12 months.
Explain your reasoning. Use the blank area in the template following the journal entries to make your notes.
Prepare the income tax expense section of the income statement for 2017, beginning with the line “Pretax financial income.”
Where appropriate, show all calculations leading to the final solution.

Part 2: Carryback and Carryforward
Use the information in Part 2 of the Assessment 5 Data Sheet to complete the following:

Prepare the journal entries for the years 2015 to 2019 to record income tax expense and the effects of the net operating loss carrybacks and carryforwards assuming Bryan Clark Company uses the carryback provision.
All income and losses relate to normal operations. (In recording the benefits of a loss carryforward, assume that no valuation account is deemed necessary.
Where appropriate, show all calculations leading to the final solution.

Deferred Assets and Liabilities

Part 3: Lessee Entries: Capital Lease
Use the information in Part 3 of the Assessment 5 Data Sheet to complete the following:

Identify and explain the type of lease. Use the blank area in the template following the journal entries to make your notes.
Compute the present value of the minimum lease payments.
Prepare all necessary journal entries for Southern for this lease through January 1, 2016.
Where appropriate, show all calculations leading to the final solution.

Part 4: Lessee-Lessor Entries: Sales-Type Lease
Use the information in Part 4 of the Assessment 5 Data Sheet to complete the following:

Discuss the nature of this lease to Capital and Hinton. Use the blank area in the template following the journal entries to make your notes.
Calculate the amount of the annual rental payment.Prepare all the necessary journal entries for Hinton for 2015.
Prepare all the necessary journal entries for Capital for 2015.
Where appropriate, show all calculations leading to the final solution.

Deferred Assets and Liabilities

Assessment Data Sheet

Part 1: Temporary Differences

Sharp Company has two temporary differences between its income tax expense and income taxes payable. The information is shown below.

	2015	2016	2017
Pretax financial income	$420,000	$455,000	$472,500
Excess depreciation expense on tax return	(15,000)	(20,000)	(5,000)
Excess warranty expense in financial income	10,000	5,000	4,000
Taxable income	$415,000	$440,000	$471,500

The income tax rate for all years is 40%.

Part 2: Carryback and Carryforward

The pretax financial income (or loss) figures for Bryan Clark Company are as follows.

2013	$ 80,000
2014	125,000
2015	40,000
2016	(80,000)
2017	(190,000)
2018	60,000
2019	50,000

Pretax financial income (or loss) and taxable income (loss) were the same for all years involved. Assume a 45% tax rate for 2013 and 2014 and a 40% tax rate for the remaining years.

Part 3: Lessee Entries: Capital Lease

On January 1, 2015, Southern, Inc. signed a 10-year non-cancelable lease for a machine. The terms of the lease called for Southern to make annual payments of $17,336 at the beginning of each year, starting January 1, 2015. The machine has an estimated useful life of 12 years.

The machine reverts back to the lessor at the end of the lease term. Southern uses the straight-line method of depreciation for all of its plant assets. Southern’s incremental borrowing rate is 6%, and the Lessor’s implicit rate is unknown.

Part 4: Lessee-Lessor Entries: Sales-Type Lease

On January 1, 2015, Capital Corp. leased equipment to Hinton Corporation. The following information pertains to this lease.

The term of the noncancelable lease is 12 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease.
Equal rental payments are due on January 1 of each year, beginning in 2015.
The fair value of the equipment on January 1, 2015, is $225,000, and its cost is $180,000.
The equipment has an economic life of 16 years. Hinton depreciates all of its equipment on a straight-line basis.
Capital set the annual rental to ensure an 11% rate of return. Hinton’s incremental borrowing rate is 12%, and the implicit rate of the lessor is unknown.
Collectability of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by the lessor.

Below is a partial answer to the above homework questions by one of our writers. If you are interested in a custom non plagiarized top quality answer, click order now to place your order.

Deferred Assets and Liabilities

Part 1: Temporary Differences

Date	Account Title	Debit	Credit
	Section 1: Journal entries
2015	Income tax expense	168,000
	Deferred tax asset (10,000 x 40%)	4,000
	Deferred tax liability (15,000 x 40%)		6,000
	Income tax payable (415,000 x 40%)		166,000

2016	Income tax expense	182,000
	Deferred tax asset (5,000 x 40%)	2,000
	Deferred tax liability (20,000 x 40%)		8,000
	Income tax payable (440,000 x 40%)		176,000

2017	Income tax expense	189,000
	Deferred tax asset (4,000 x 40%)	1,600
	Deferred tax liability (5,000 x 40%)		2,000
	Income tax payable (471,500 x 40%)		188,600

	Section 2: Balance sheet entries
	Current asset
	Deferred tax asset (4000+2000+1600)	7,600

	Long-term liability
	Deferred tax liability (6000+8000+2000)	16,000

	Section 3: Income tax expense
	Pretax income	472,500
Less:	Income tax expenses	188,600
	Net deferred tax	400
	Net income post tax	283,500

Explanation:

2015

Deferred tax asset = 10,000 x 40% = 4000

Deferred tax liability 15,000 x 40% = 6000

Income tax payable 415,000 x 40% = 166,000

2016

Income tax expense

Deferred tax asset 5,000 x 40% = 2000

Deferred tax liability 20,000 x 40% = 8000

Income tax payable 440,000 x 40% = 176,000

2017

Deferred tax asset = 4,000 x 40% = 1600

Deferred tax liability = 5,000 x 40% = 2000

Income tax payable = 471,500 x 40% = 188,600

Part 2: Carryback and Carryforward

	Date	Account Title	Debit	Credit
1	2015	Income Tax Expense	$16,000
2		Income Tax Payable		$16,000
3	2016	Income Tax Refund Receivable	$36,000
4		Benefit Due to Loss Carryback		$36,000
5	2017	Income Tax Refund Receivable	$16,000
6		Benefit Due to Loss Carryback		$16,000
7		Deferred Tax Asset	$60,000
8		Benefit Due to Loss Carryforward		$60,000
9	2018	Income Tax Expense	$24,000
10		Deferred Tax Asset		$24,000
11	2019	Income Tax Expense	$20,000
12		Deferred Tax Asset		$20,000

Calculations

1. Income tax expense

40,000 x 40%

= $16,000

3. Income tax refund receivable

80,000 x 45%

= $36,000

5. Income tax refund receivable

40,000 x 40%

= $16,000

7. Deferred Tax Asset

[(190,000 – 40,000) x 40%]

= $60,000

9. Income Tax Expense

(60,000 x 40%)

= $24,000

11. Income Tax Expense

50,000*40%

= $20,000

Part 3: Lessee Entries: Capital Lease

Date	Account Title	Debit	Credit
Jan 2015	Leased equipment	$135,250
	Lease liability		$135,250

Jan 2015	Lease liability	$17,336
	Cash		$17,336

Jan 2015	Depreciation	$13,525
	Accumulated depreciation		$13,525

Jan 2016	Lease liability	$10,261
	Interest expense	$7,075
	Cash		$17,336

Explanation:

The lease can be considered a capital lease. This is because the lease life exceeds 75% of the asset’s life. According to FASB, a capital lease may meet either of the following criteria:

The lease life is more than 75% of asset’s life.
Ownership transfer is done at the end of the lease
Present value is higher than 90% of the asset’s fair value
The leasee has an option to buy the lease asset below market value once the lease has expired.

Given that the lease life exceeds 75% of asset’s life, it is considered a capital lease. The calculations are provided as below.

10/12 x 100 = 83.3%

Equipment is capitalized at the minimum of fair value and present value of the lease payments. However, there is no fair value given and thus present value of minimum lease payments is used.

Depreciation calculation:

= Capitalized amount / Life of project

= 135,250 / 10

= $13,525

Part 4: Lessee-Lessor Entries: Sales-Type Lease

Date	Account Title	Debit	Credit
	Lessor Accounts
	Lease receivables	225,000
	Equipment		225,000

	Installment received
	Cash	31,224
	Lease receivable		31,224


	Hilton’s Accounts
	Leased asset equipment	225,000
	Lease liability		225,000

	Depreciation	14,062.5
	Accumulated depreciation		14,062.5

Explanation:

No interest factor is considered because payment for the lease is made on 1^st January. This means that interest has not accumulated.

The type of lease in this case is a capital lease. This is because the lease term is equivalent to 75% of its economic life or more. To calculate 75% of the lease term, the following calculation is done.

12/16 x 100 = 75%

Given that the lease period is 12 years while economic life is 16 years, it means that the lease period is 75%……..

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Corporation Tax Liability

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Corporation Tax Liability

Aim:

The aim of this task is for you to demonstrate your ability to advise a company on its corporation tax liability and on some tax planning measures it might take to reduce that liability.

Scenario:

Your supervisor, Tom Scott has sent you;

a memo and predicted financial figures for Capricorn Ltd and
an email about an in-house training session which he is running next week.

He has asked you to prepare a PowerPoint presentation for him to use at a meeting with Capricorn next week together with a calculation of the company’s trading profit/loss. He has also asked you to prepare a few PowerPoint slides for him to use at the firm’s in-house tax training refresher.

Task:

(The task requires you to calculate a company´s liability to corporation tax and prepare two short PowerPoint presentations on the use of losses and the application of rollover relief respectively).

Corporation Tax Liability

Instructions:

Your tasks are:

To calculate Capricorn’s trading loss and chargeable gain based on the projected figures provided for the Financial Year 2017.

The calculation should follow Steps 1 and 2 of the template (see below).

However, keep the trading loss and chargeable gain figures separate as you will consider how to treat the loss in the second part of this task.

This calculation should be prepared in a separate document and accompany your presentations prepared in accordance with paragraphs 2) and 3) below.

To prepare a presentation to the directors of Capricorn Ltd explaining the ways

in which the projected loss which the company may make this year could be set off against the company’s previous, current or future income and/or gains.

The presentation should consist of between 6-7 PowerPoint slides; (Topic: Presentation to Capricorn Ltd On Corporation Tax – Treatment of Trading Losses)

The presentation should be structured as follows:

Slide 1: Title slide (with date and time)
1. Slide 2: The options available
1. A slide for each option explaining how the relief works
1. A slide showing how the relief works for Capricorn Ltd using

the figures you have calculated.

The slides should be accompanied by brief explanatory notes (typed into the ‘Notes’ section) which your supervisor could use when making the presentation.

To prepare a presentation for your supervisor to use at the training session next week to explain when and how roll-over relief on replacement of business assets may be used by a company to reduce its liability to corporation tax.

The presentation should consist of between 6-7 PowerPoint slides; (Topic: Training Session; Corporation Tax: Operation and Use of Rollover Relief)

The presentation should be structured as follows:

Slide 1: Title slide (with date and time)
1. Slide 2: The elements of the relief
1. A slide explaining each element
1. Example with figures
1. Comparison of a company’s liability with or without relief.

In preparing this presentation you will need to refer to s.152-156 TCGA 1992 which are attached below.

Corporation Tax Liability

Charlesʼ Lawyers

Memorandum

From: Tom Scott

To: You

Date: 21. November 2017

Client: Capricorn Ltd., 9 Weston Development Park, Stoke ST 60 5YT

Capricorn Limited is a newish client. The MD, Jason Singe, consulted us last year for advice on terms and conditions for internet trading via e-bay. Basically the company was formed about five years ago and it imports wood from sustainable sources to make rustic garden furniture. Until last year this was sold only through independent local garden centres but the poor summer last year, coupled with fears about reduced consumer spending, caused the company to look for new sources of customers, hence selling through e-bay.

Unfortunately, despite this, the poor economic climate has taken its toll. Jason has sent me Capricorn’s projected sales and expenditure figures for this year and they are attached to this Memo. I have had a quick look at the figures and whilst I have not done the calculation, it looks clear that there will be a trading loss. Jason has told me that last year the profit made was £250,000 and corporation tax paid for the Financial Year 2016 was 20%, was £50,000.

In an attempt to generate cash the company sold its premises in June 2017 and moved into rented premises. The relevant figures are given on the attached sheet. Capricorn hopes to be able to buy new premises again once the financial picture improves, but the board have delayed making any decision on this for the time being.

Jason and his two fellow board members are coming in next week to seek general advice on the financial situation. They feel the company is well placed to trade through its difficulties and the initial figures for the internet sales have been promising. However they are still very concerned at the prospect of making a loss.

As part of our advice to them we clearly need to look at the company’s tax situation and I think it would be useful for us to be able to do a short presentation for the directors on how losses are treated for tax purposes.

I know you are on holiday next week and one of your fellow lawyers from our Business Support and Restructuring Department will attend the meeting with me. However before you go on holiday, I should like you to prepare:

A calculation showing Capricorn’s trading profit/loss and its chargeable gain for the Financial Year 2017 on the basis of the projected figures attached; and

Using the figures from your calculation, a presentation of between 6 and 7 PowerPoint slides which deals with how losses can be used to obtain repayments of corporation tax or to reduce current or future corporation tax liability.

It is very important that the presentation should be relevant to Capricorn’s situation and explain any tax reductions or rebates that may apply. As you will be unable to attend the meeting please make sure that each slide is accompanied by an explanatory note which I can use when making the presentation to the client.

Corporation Tax Liability

Capricorn Limited

Projected figures for Financial Year 2017 £

Sales 1,845,000

Expenses:

Stock 900,000

Salaries 600,000

General overheads 298,000

Insurance 18,000

Advertising 12,090

Rent paid (since June 2017) 15,000

Purchase of new machinery: £20,000

Value of existing pool of machinery: £400,000

Sales of premises in June 2017

Sale proceeds 360,000

Less cost of disposal 21,000

Acquisition Cost (January 2010) 250,000

Incidental costs of acquisition 4,000

Indexation factor for a disposal in June 2017:

from January 2010: 0.215

Corporation Tax Liability

E-mail:

From: Tom Scott

Sent: 21. November 2017

To: You

URGENT

Subject: Tax Training

As you are preparing some slides on Corporation tax losses for the presentation to Capricorn next week I would also like you to prepare a few additional slides for our in-house Training Session next week which it is my turn to do (again!).

As part of the session, I thought I would do a five minute refresher on how roll-over relief can be used by corporate clients.

Could you please let me have 6 to 7 slides which cover this topic. As you know, I always feel it is a good idea to be able to illustrate the theory with an example from practice. Perhaps you could use the example from the work we did for Amtex Ltd recently, when we advised them on the operation of the relief when they sold their old warehouse and decided to buy new offices.

To save you getting the file out, we calculated that the chargeable gain which Amtex made when they sold the warehouse in May 2016 was £650,000 and the purchase price for their new offices was £1,100,000

Corporation Tax Liability

Appendix:

KEY FACTS for Corporation Tax for Financial Year 2017 (FY 2017) which runs from 1. April 2017 to 31. March 2018

Rate of Tax 19%

Capital allowances

Annual Investment Allowance for is £200,000

Writing Down Allowances:

18% on ‘main pool’ of expenditure on plant and machinery
- 8% on ‘special rate pool’ of expenditure on integral features and long-life assets

Corporation Tax Liability

TEMPLATE FOR CORPORATION TAX CALCULATIONS:

STEP 1: CALCULATE INCOME PROFITS

Add up Income from various sources: £

Land

Investments

Trading Income:

Chargeable receipt

Less

Deductible expenditure Less

Capital allowances

= Trading profit (or loss)

STEP 2: CALCULATE CHARGEABLE GAINS

Stage 1: Identify the chargeable disposal

Stage 2: Calculate the gain or loss

Stage 3: Apply any reliefs

Stage 4: Aggregate remaining gains/losses

STEP 3: CALCULATE TOTAL PROFITS

APPLY RELIEFS AVAILABLE AGAINST TOTAL PROFITS

Main examples:

Carry-across/carry-back relief for a trading loss Terminal carry back relief for a trading loss Qualifying donations to charity

STEP 4: CALCULATE THE TAX AT THE APPROPRIATE RATE

Rate of Tax 19%

Corporation Tax Example:

Wendle Joinery Limited (‘the company’) makes wooden doors, architrave and skirting boards for the domestic market. In the accounting period ending 31 March 2018, the company has a turnover of £8,500,000, deductible expenditure of £7,200,000 and it claims £450,000 in capital allowances.

The company had been operating from two locations but, in September 2017, the company sold the smaller of the two sites, having consolidated all its operations on its main site. The sale of the smaller site realised a chargeable gain of £300,000 (for which no reliefs are available).

The company makes a donation of £20,000 every year to the Woodland Trust (a registered charity).

Corporation Tax Liability

Using the template (see above), calculate the company´s liability to corporation tax for the accounting period ending 31. March 2018.

EXAMPLE – ANSWER:

Step 1: Calculate income profits

From the facts of the example, the company only has once source of income, being its trading income. This is calculated using the formula:

Chargeable receipts 8,500,000

Less

Deductible expenditure 7,200,000

Less

Capital allowances (450,000)

Trading profit 850,000

STEP 2: Calculate chargeable gains

The facts state that these are £300,000.

STEP 3: Calculate total profits

Apply reliefs available against total profits

Total profits are calculated by adding together the income profits and chargeable gains:

Income profits 850,000

Chargeable gains 300,000

Total profits 1,150,000

From total profits can be deducted the qualifying donation to charity to leave taxable profits:

Total profits 1,150,000

Less

Charity donation (20,000)

Taxable profits 1,130,000

STEP 4: Calculate the tax at the appropriate rate(s)

1,130,000 x 19% = 214,700

Corporation Tax payable: £214,700.

Taxation of Chargeable Gains Act 1992

Part V

Transfer of Business Assets

Corporation Tax Liability

Chapter I

General Provisions

Replacement of business assets

152 Roll-over relief

(1) If the consideration which a person carrying on a trade obtains for the disposal of, or of his interest in, assets (“the old assets”) used, and used only, for the purposes of the trade throughout the period of ownership is applied by him in acquiring other assets, or an interest in other assets (“the new assets”) which on the acquisition are taken into use, and used only, for the purposes of the trade, and the old assets and new assets are within the classes of assets listed in section 155, then the person carrying on the trade shall, on making a claim as respects the consideration which has been so applied, be treated for the purposes of this Act —

(a) as if the consideration for the disposal of, or of the interest in, the old assets were (if otherwise of a greater amount or value) of such amount as would secure that on the disposal neither a gain nor a loss accrues to him, and

(b) as if the amount or value of the consideration for the acquisition of, or of the interest in, the new assets were reduced by the excess of the amount or value of the actual consideration for the disposal of, or of the interest in, the old assets over the amount of the consideration which he is treated as receiving under paragraph (a) above,

but neither paragraph (a) nor paragraph (b) above shall affect the treatment for the purposes of this Act of the other party to the transaction involving the old assets, or of the other party to the transaction involving the new assets.

(2) Where subsection (1)(a) above applies to exclude a gain which, in consequence of Schedule 2, is not all chargeable gain, the amount of the reduction to be made under subsection (1)(b) above shall be the amount of the chargeable gain, and not the whole amount of the gain.

(3) Subject to subsection (4) below, this section shall only apply if the acquisition of, or of the interest in, the new assets takes place, or an unconditional contract for the acquisition is entered into, in the period beginning 12 months before and ending 3 years after the disposal of, or of the interest in, the old assets, or at such earlier or later time as the Board may by notice allow.

(4) Where an unconditional contract for the acquisition is so entered into, this section may be applied on a provisional basis without waiting to ascertain whether the new assets, or the interest in the new assets, is acquired in pursuance of the contract, and, when that fact is ascertained, all necessary adjustments shall be made by making [or amending] assessments or by repayment or discharge of tax, and shall be so made notwithstanding any limitation on the time within which assessments [or amendments] may be made.

(5) This section shall not apply unless the acquisition of, or of the interest in, the new assets was made for the purpose of their use in the trade, and not wholly or partly for the purpose of realising a gain from the disposal of, or of the interest in, the new assets.

(6) If, over the period of ownership or any substantial part of the period of ownership, part of a building or structure is, and part is not, used for the purposes of a trade, this section shall apply as if the part so used, with any land occupied for purposes ancillary to the occupation and use of that part of the building or structure, were a separate asset, and subject to any necessary apportionments of consideration for an acquisition or disposal of, or of an interest in, the building or structure and other land.

(7) If the old assets were not used for the purposes of the trade throughout the period of ownership this section shall apply as if a part of the asset representing its use for the purposes of the trade having regard to the time and extent to which it was, and was not, used for those purposes, were a separate asset which had been wholly used for the purposes of the trade, and this subsection shall apply in relation to that part subject to any necessary apportionment of consideration for an acquisition or disposal of, or of the interest in, the asset.

(8) This section shall apply in relation to a person who, either successively or at the same time, carries on 2 or more trades as if both or all of them were a single trade.

(9) In this section “period of ownership” does not include any period before 31st March 1982.

(10) The provisions of this Act fixing the amount of the consideration deemed to be given for the acquisition or disposal of assets shall be applied before this section is applied.

(11) Without prejudice to section 52(4), where consideration is given for the acquisition or disposal of assets some or part of which are assets in relation to which a claim under this section applies, and some or part of which are not, the consideration shall be apportioned in such manner as is just and reasonable.

Corporation Tax Liability

153 Assets only partly replaced

(1) Section 152(1) shall not apply if part only of the amount or value of the consideration for the disposal of, or of the interest in, the old assets is applied as described in that subsection, but if all of the amount or value of the consideration except for a part which is less than the amount of the gain (whether all chargeable gain or not) accruing on the disposal of, or of the interest in, the old assets is so applied, then the person carrying on the trade, on making a claim as respects the consideration which has been so applied, shall be treated for the purposes of this Act—

(a) as if the amount of the gain so accruing were reduced to the amount of the said part (and, if not all chargeable gain, with a proportionate reduction in the amount of the chargeable gain), and

(b) as if the amount or value of the consideration for the acquisition of, or of the interest in, the new assets were reduced by the amount by which the gain is reduced (or as the case may be the amount by which the chargeable gain is proportionately reduced) under paragraph

(a) of this subsection,

(2) Subsections (3) to (11) of 152 shall apply as if this section formed part of that section.

Corporation Tax Liability

[153A Provisional application of sections 152 and 153]

[(1) This section applies where a person carrying on a trade who for a consideration disposes of, or of his interest in, any assets (“the old assets”) declares, in his return for the chargeable period in which the disposal takes place —

(a) that the whole or any specified part of the consideration will be applied in the acquisition of, or of an interest in, other assets (“the new assets”) which on the acquisition will be taken into use, and used only, for the purposes of the trade;

(b) that the acquisition will take place as mentioned in subsection (3) of section 152; and

(2) Until the declaration ceases to have effect, section 152 or, as the case may be, section 153 shall apply as if the acquisition had taken place and the person had made a claim under that section.

(3) The declaration shall cease to have effect as follows—

(a) if and to the extent that it is withdrawn before the relevant day, or is superseded before that day by a valid claim made under section 152 or 153, on the day on which it is so withdrawn or superseded; and

(b) if and to the extent that it is not so withdrawn or superseded, on the relevant day.

(4) On the declaration ceasing to have effect in whole or in part, all necessary adjustments—

(a) shall be made by making or amending assessments or by repayment or discharge of tax; and

(b) shall be so made notwithstanding any limitation on the time within which assessments or amendments may be made.

(5) In this section “the relevant day” means—

(a) in relation to capital gains tax, the third anniversary of the 31st January next following the year of assessment in which the disposal of, or of the interest in, the old assets took place;

(b) in relation to corporation tax, the fourth anniversary of the last day of the accounting period in which that disposal took place.

(6) Subsections (6), (8), (10) and (11) of section 152 shall apply for the purposes of this section as they apply for the purposes of that section.]

Corporation Tax Liability

154 [not supplied]

155 Relevant classes of assets

The classes of assets for the purposes of section 152(1) are as follows.

Class 1

Assets within heads A and B below.

Head A

1. Any building or part of a building and any permanent or semi-permanent structure in the nature of a building, occupied (as well as used) only for the purposes of the trade.

2. Any land occupied (as well as used) only for the purposes of the trade. Head A has effect subject to section 156.

Head B

Fixed plant or machinery which does not form part of a building or of a permanent or semi- permanent structure in the nature of a building.

Class 2

Ships, aircraft and hovercraft (“hovercraft” having the same meaning as in the Hovercraft Act 1968).

Class 3

Satellites, space stations and spacecraft (including launch vehicles).

Class 4

Goodwill.

Corporation Tax Liability

[Classes 5-8 omitted]

156 Assets of Class 1

(1) This section has effect as respects head A of Class 1 in section 155.

(2) Head A shall not apply where the trade is a trade—

(a) of dealing in or developing land, or

(b) of providing services for the occupier of land in which the person carrying on the trade has an estate or interest.

(3) Where the trade is a trade of dealing in or developing land, but a profit on the sale of any land held for the purposes of the trade would not form part of the trading profits, then, as regards that land, the trade shall be treated for the purposes of subsection (2)(a) above as if it were not a trade of dealing in or developing land.

[(4) Where [section 19 of ITTOIA 2005] [or section 42 of CTA 2009] applies (tied premises: receipts and expenses treated as those of trade) the trader shall be treated, to the extent that the conditions in subsection (1) of that section are met in relation to premises, as occupying as well as using the premises for the purposes of the trade.]

Corporation Tax Liability

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How ethical behaviors can impact the re-distributive policy of income tax

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How ethical behaviors can impact the re-distributive policy of income tax.

Order Instructions:

Capture this; I am against redistribute policy. I believe that redistributive is unfair to certain groups of people and it is unfair to another group of people regardless of their wealth. Income tax should be flat or proportions, same percentage for all. progressive U.S. current tax system gives negative incentives and discourages hard work. The government could support or give aid to those considered to be “less advantage” and not through taking other taxpayers earning.
Sources to be not older than 2012.

How ethical behaviors can impact the re-distributive policy of income tax

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How ethical behaviors can impact the re-distributive policy of income tax

Introduction

Taxation has always been used as a means for the governing body to earn for the purposes of provision of service to their people. It is a concept that has been there since long ago. There are however different methods through which the taxation process is carried out, income tax, value added tax and sales tax among others. This is all meant to ensure the sustenance of the social contract between the citizenry and the governing bodies. In the exercising of their taxing mandate the United States has come up with various methods that are meant to guide the process of taxation.

These methods typically need to conform to the values the society regards as ethical in order to gain acceptance among them. In so doing, the use of the redistributive system of taxation has been applied in the income tax collection. This system bears into consideration the amount of income and taxes in accordance with the same such that those who earn more pay more and vice versa. In the implementation of the same, the principle of equality was core. The taxation system additionally gives incentives to others by exempting them from taxation due to their financial situations.

Ethical behaviors and taxation

The rationality associated with decision making has long been considered as being due to the conscious and unconscious elements in our thoughts. The commitment of one to fulfill their social obligations such as the payment of tax has been premised on the principle of fairness where they are rewarded satisfactorily for their efforts (Chan, Wong and Wong, 2013). The same can be seen in taxation, in that those who feel satisfied by the services being offered by the government readily pays their taxes and are even willing to work harder in order to meet their tax obligations.

In the discharge of their taxation obligations, the government has made several rules that are intended to foster the principle of equality and social inclusion of all. The redistributive policy was thus implemented. This policy is meant to tax more for those who earn more and subsequently less for those who owe less. It is also coupled with certain incentives that are meant to cushion both businesses and individuals who earn less but have more social obligations.

The same is also meant to increase the chances of individuals in business as their risks would have been lowered by the incentive (Pastor and Veronesi, 2016). It is also meant to be a social cushion where the money saved by the incentives can be used in the performance of other social obligations in relation to the safeguarding of the basic societal provisions. In all this, the government tries to ensure equality and inclusiveness by giving the less fortunate the incentive for them to be able to provide for their basic needs.

All in all, the payment of tax is an obligation of every citizen and the incentives offered are meant to help the society by reducing their financial burdens so that they can be able to cater for their basic needs and also take risks in business ventures due to their skill set. It is therefore the general perception that in the discharge of their duty to pay tax, the citizens will be guided by their moral authority to fulfill their social obligations.

Negative impact of redistributive policy in income taxation.

The promotion of redistributive taxation and the progressive system in the imposition of the same has however led to the unethical behavior in many. This is because of the unfairness it has to the hard working Americans who toil to earn a living only to be taxed and the same used in supporting and offering essential services to those who do not work but wait on the incentives. This process of taxation is termed unfair since one is made to pay more for working harder. The cost benefits are classified as one of the factors that affect the ethical behaviors in people (Trautmann, van de Kuilen and Zeckhauser, 2013).

In the consideration of the same, the use of the redistributive system can be said to have negative implications in the motivation of citizenry generally classified as of the lower class in not seeking sources of income since they will be cushioned from paying taxes and yet receive the same basic services the others are receiving. The value of hard work and the utilization of the different talents will be diminished since preference is given to those with less as they do not have to pay but receive the services anyway….

How ethical behaviors can impact the re-distributive policy of income tax

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Federal Income Tax System

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Federal Income Tax System

Overview
Analyze official rules and instructions of th Federal Income Tax System to determine an individual’s tax liability and complete a basic tax return.
Note: Completing a tax return requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in this assessment will result in
incorrect entries in future assessments. Do not complete Assessment 2 until you have submitted and received faculty feedback for Assessment 1.

Federal Income Tax System

Using an official primary source to obtain answers to tax questions is an essential academic skill and step toward financial literacy.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:
Competency 1: Analyze the background of the federal income tax system.
o Provide evidence of requirements for a tax return from an official primary source.
o Determine whether filing a return is mandatory for a scenario.
o Determine filing status.
o Determine filing cost for an e-return.
Competency 2: Analyze the basics of individual income tax return preparation.
o Analyze official rules, instructions, and tax tables to determine the tax owed.
o Analyze official rules, instructions, and tax tables to determine the amount of a refund.

Federal Income Tax System

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Context
“The art of taxation consists in so plucking the goose to obtain the largest amount of feathers with the least possible amount of hissing.” — Jean-Baptiste Colbert, French Minister of Finance from 1665 to 1683 under the rule of King Louis XIV. If the scenario described in Colbert’s quote seems familiar, it is probably because it is repeated annually by the millions of U.S. citizens who are obligated to pay homage to the Internal Revenue Service by remitting many of their hard-earned
dollars because they underpaid Uncle Sam throughout the prior tax year. The federal tax system is a huge structural machine that seems more complex each year.
Try to keep the hissing down as we begin to pluck the feathers off the goose one at a time.

Reference
Quotegarden.com. (n.d.). Quotations about taxes. Retrieved from http://www.quotegarden.com/taxes.html

Question to Consider
To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

Federal Income Tax System

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Until what age can a parent claim a child as a dependent?
How much money does a person have to earn to trigger the filing requirement?
Is it necessary to purchase tax software to calculate every return?

Resources
The following resources are required to complete the assessment.
Internet Resources
Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
IRS.gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to taxn questions.
Download the appropriate forms and publications from the IRS Web site to ncomplete this assessment.
IRS.gov. (n.d.). Retrieved from http://www.irs.gov/
IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1
IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu

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Redistributive Tax System

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Redistributive Tax System

Supply-side economists hold the belief that the introduction of a redistributive tax system would go against the goal of expanding the long-term economic growth over time. Their explanation is that the redistributive tax system would improve the disposable income of the low-income earners. This would have the effect of making the low-income earners more comfortable with working at lower wages, making the goal of expanding economic growth difficult to achieve.

A tax designed to alter the distribution of income or wealth. In practice, the redistribution is usually in the direction of greater equality, but history has recorded rulers who have used taxation to redistribute in their own favour and hence to increase inequality. A system of lump-sum taxation under which some consumers pay positive taxes while others receive subsidies is redistributive: it reduces income inequality if the subsidies are received by low-income consumers and positive taxes are paid by high-income consumers. The redistributive effect of the tax system can only be found by considering the net effect of all taxes; the redistributive effect of government intervention in total must take into account all transfers and taxes.

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Sole Proprietor Income Deductions

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Sole Proprietor Income Deductions

Analyze official rules and instructions to complete a Schedule C and related required tax forms, to reflect income and deductions related to self-employment as a sole proprietor.

Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 2 until you have submitted and received faculty feedback for

Assessment 1.

The use of Schedule C is required when the individual’s business is not incorporated or formed as a partnership or limited liability company.
By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Analyze the background of the federal income tax system.o Analyze official information to identify tax forms required for a sole proprietorship

• Competency 2: Analyze the basics of individual income tax return preparation.o Analyze official rules and instructions to determine eligible business tax credits.o Analyze official rules and instructions to determine eligible deductions.o Analyze official rules and instructions to correctly compute SE tax and SE deduction.o Interpret official rules and instructions to record correct entries on all tax forms.

Sole Proprietor Income Deductions

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Context

“The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” — Ronald Reagan.

If an individual is searching for a tax strategy to offset his or her income from a primary job, being self-employed on the side is quite possibly one of the best options, along with being a real estate property owner or an investor. Each of these has the advantage of allowing an individual to reduce current income by any losses suffered from freelancing, renting out property, or investing.

However, the individual takes on additional work for the filing process. Schedule C must be completed, a task that requires an individual to know much more about the tax rules for recognizing income and maximizing expenses than many persons are willing to invest the time to research.

Question to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

• What are the financial advantages of self-employment?• Can a person have multiple Schedule Cs?• What are the financial implications of hiring employees versus independent contractors?

Resources
The following resources are required to complete the assessment.

Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
RS.gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to tax questions.

Download the appropriate forms and publications from the IRS Web site to complete this assessment.• IRS.gov. (n.d.). Retrieved from http://www.irs.gov/• IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1• IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu

Suggested Resources

FORM 1040: SCHEDULE C SELF-EMPLOYED BUSINESS INCOME
Taxpayers who attribute a large portion of their taxable income to operating a self-employment business or trade must complete Schedule C to determine the presence of a business income or loss. The income from this endeavor is netted with related ordinary and necessary business expenses to calculate the increase or decrease in AGI that result from the self-employed trade or business.

In addition to completing and filing Schedule A with the taxpayers Form 1040, it may be necessary to file Schedule SE (Self-employment Tax), as well as Forms 8829 (Expenses for Business Use of Your Home) and 4562 (Depreciation and Amortization).

• J. K. Lasser Institute. (2015). Your income tax 2015: For preparing your 2014 tax return. Hoboken, NJ: Wiley.

• J. K. Lasser Institute. (2014). Your income tax 2014: For preparing your 2013 tax return. Hoboken, NJ: Wiley.

• Herman, T. (2014, February 16). Home-office deduction simplified. The Wall Street Journal, p. 2.

• Flynn, K. E., Belak, P., & Soltis, G. (2014). Understanding individual tax compliance: Advanced deductions and related issues. Journal of Business Case Studies, 10(4), 425–440

• Korb, P. J., & Williams, J. L. (2014). Simplified option versus regular method for home office deductions. The CPA Journal, 84(12), 36–39.

• Intuit Inc. (2015, January 26). Intuit’s QuickBooks Online Self-Employed integrates with Stripe, simplifying tax reporting for on-demand economy workers [Press release]. Business Wire.

• Everett, J. O., Hennig, C. J., Raabe, W. A., & Sonnier, B. M. (2013). Tax planning opportunities for individual net operating losses. Journal of Taxation, 119(3), 108–116.

Sole Proprietor Income Deductions

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Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.• lynda.com. (n.d.). Income tax fundamentals: Accounting tutorials. Retrieved from http://www.lynda.com/Business-Accounting-tutorials/Income-Tax-Fundamentals/188210-2.html• IRS. (n.d.). IRS videos. https://www.youtube.com/user/irsvideos.

o The IRS has a channel on YouTube devoted to income tax information in a video format. There are numerous videos available to help you with the course assessments. Videos are available with closed captions and in ASL and multilingual versions. You can search this channel by topic.

Assessment Instructions

1.Calculating correct entries for self-employment requires significant research. For those are who self-employed, entries from self-employment tax forms are necessary to complete the 1040 form.

For this assessment, use information and publications from IRS.gov and the other IRS resources linked in the Resources under the Required Resources heading to research the regulations and complete the appropriate self-employment schedules, based on the provided scenario.

Sole Proprietor Income Deductions

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Complete the following:

• Read the information provided in the scenario below.

• Download the appropriate forms and publications from IRS.gov to complete this assessment.

• Complete the entries on tax forms required for a sole proprietorship return.

• Analyze official rules and instructions to correctly compute SE tax and SE deduction.o 1040sc.o 1040sse.

• Determine whether Jacob’s business is eligible for any tax credits.o Is Jacob’s business eligible to use the Work Opportunity Credit and Disabled Access Credit?

• Determine eligible business deductions.

• Interpret official rules and instructions to record correct entries on all related self-employed schedules.

• Submit the tax forms.

Scenario
Jacob Weaver is a contractor operating as a sole proprietorship (EIN 99-3456789).
• 2016 net income: $133,000.

• Clients owe him a total of $53,000 for work completed in 2016.

• 2016 estimated tax payments: $25,000.

• Jacob and Taylor bought their first house in 2016.

• He is using a bedroom in his house as a home office. The room is 15′ x14′.

• He has one half-time employee, Martin, who had been unemployed since returning from Afghanistan and is disabled.o Martin worked for Jacob for 20 hours a week, for 41 weeks of 2016.o Martin earned $10,500.o Jacob had to spend $7,350 for disabled access equipment for Martin

Sole Proprietor Income Deductions

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Tax Credits on 1040 to Reduce Tax Liability

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Tax Credits on 1040 to Reduce Tax Liability

Assessment 5

Overview

Determine eligibility for available tax credits and complete an official worksheet for each credit, to demonstrate eligibility.Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.

Tax credits work to lower taxpayer liability rather than provide refund incentives. A tax credit is subtracted directly from the taxpayer’s tax obligation, providing equal relief to all taxpayers. This can make the credit more valuable than a deduction taken during the filing process.

Tax Credits on 1040 to Reduce Tax Liability

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By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 1: Analyze the background of the federal income tax system.
o Interpret official rules and instructions to record correct entries on tax forms.• Competency 2: Analyze the basics of individual income tax return preparation.o Analyze tax rules to complete tax credit worksheets to prove eligibility.o Apply laws and rules to correctly enter data on Schedule A.o Apply rules and tax tables to record the correct tax owed on the 1040.o Correctly calculate the amount of a refund on the 1040.

Context

“When a new source of taxation is found it never means, in practice, that the old source is abandoned. It merely means that the politicians have two ways of milking the taxpayer where they had one before.” — Henry Louis Mencken, one of the most influential American writers of the early twentieth century.

Politicians have a penchant for finding ways for doing one of two things:

• Enacting tax credits for the benefit of individual taxpayers as a means of putting more money in taxpayer pockets to stimulate the economy.• Enacting tax credit legislation for the benefit of specific groups or industries in the business sector.
The hope is that businesses will take the additional monies and reinvest them in the business for the benefit of the economy.

There are credits for foreign taxes paid, child and dependent care expenses, and for the elderly or disabled; credits for education, retirement savings contributions, and residential energy; and child tax credit, adoption, retirement savings, and earned income credits.

Tax Credits on 1040 to Reduce Tax Liability

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Reference

Quotegarden.com. (n.d.). Quotations about taxes. Retrieved from http://www.quotegarden.com/taxes.html

Question to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.

• How do tax credits directly benefit an individual taxpayer?• Which is more advantageous: a deduction or a tax credit?• What can you do if you have already filed your tax return and you discover you are eligible for a tax credit?

Resources

Required Resources

The following resources are required to complete the assessment.
Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate

IRS.gov is the homepage for the federal IRS Web site. Use the tabs at the top of the page to navigate the site. The Interactive Tax Assistant and Tax Trails are tools that walk you through a series of questions to find answers to tax questions. Download the appropriate forms and publications from the IRS Web site to complete this assessment.

• IRS.gov. (n.d.). Retrieved from http://www.irs.gov/• IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1• IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu
The following optional resources are provided to support you in completing the assessment or to provide a helpful context.
Click the links provided below to view the following multimedia pieces:

Tax Credits on 1040 to Reduce Tax Liability

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FORM 1040: TAX CREDITS

This final section of Form 1040 incorporates a variety of tax credits designed to reduce tax liability for certain taxpayer groups. The unique aspect of these credits is that they are subtracted directly from the total federal tax liability of the taxpayer(s). The affect of these credits can reduce or eliminate the taxpayer’s financial obligation.If a taxpayer is eligible for any/all of the credits, additional tax forms must be completed and filed with the Form 1040.

The primary forms are Form 1116 ( Foreign Tax Credit), Form 2441 (Credit for Child and Dependent Care Expenses), Form 8863 (Education Credits), Form 8880 (Credit for Retirement Savings Contributions, Form 8839 (Qualified Adoption Expenses), and Schedule EIC (Earned Income Credit).Licensed under a Creative Commons Attribution 3.0 License.

Library Resources

• J. K. Lasser Institute. (2015). Your income tax 2015: For preparing your 2014 tax return. Hoboken, NJ: Wiley.

• J. K. Lasser Institute. (2014). Your income tax 2014: For preparing your 2013 tax return. Hoboken, NJ: Wiley.

• Galletta, P. Z. (2014). Taking credit for your work: A roundup of federal tax credits available to individuals. The CPA Journal, 84(12), 17–23.

• Crawford, C., & Crawford, C. (2014). 2014 individual tax landscape. The CPA Journal, 84(12), 6–8.

• Baldwin, D. R., Carlton, L. H., Fava, K. L., Haim, D, Horn, J., Morrow, S., . . . Zidik, D. J., Jr. (2014). Individual taxation: Digest of recent developments: Part II. The Tax Adviser, 45(4), 274–280.

Internet Resources

Access the following resources by clicking the links provided. Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
• lynda.com. (n.d.). Income tax fundamentals: Accounting tutorials. Retrieved from http://www.lynda.com/Business-Accounting-tutorials/Income-Tax-Fundamentals/188210-2.html

• IRS. (n.d.). IRS videos. https://www.youtube.com/user/irsvideos.

Cruz, A., Deschamps, M., Niswander, F., Prendergast, D., Schisler, D., & Trone, J. (2016). Fundamentals of taxation 2016 [with taxation software] (9th ed.). New York, NY: McGraw-Hill.o Chapter 9, “Tax Credits (Lines 47 through 54 and Line 64A, Form 1040).”

Tax Credits on 1040 to Reduce Tax Liability

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Assessment Instructions

Note: The assessments in this course are presented in sequence and must be completed in order. In Assessments 2–5, you will work step-by-step toward completing a 1040 tax return and all the necessary related forms, based on a provided scenario. Do not complete Assessment 5 until you have submitted and received faculty feedback for Assessment 4.
This assessment will require significant research and critical thinking to complete each required form successfully. An incorrect entry on one form will create incorrect entries in other forms.

There are two parts to this assessment. Be sure to complete both parts and submit the necessary materials.• Part 1: Determine eligible tax credits by completing official worksheets.• Part 2: Complete Schedule A and the 1040.

Preparation

• Read the information provided in the scenario below.• Download the following tax forms and instructions from IRS.gov, linked in the Resources under the Required Resources heading:o 1040.o Schedule A.o 2441.o 3800.o 5884.o 6251.o 8826.
Part 1Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to interpret official rules and instructions to determine available tax credits.

Tax Credits on 1040 to Reduce Tax Liability

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• Complete an official worksheet for each tax credit to demonstrate eligibility.• Submit each tax credit worksheet.
Part 2Use the information in the scenario, on IRS.gov, and in the interactive IRS tools to Interpret official rules and instructions to complete the following:

• Complete Schedule A.• Enter data from Schedule A into the 1040.• Apply the rules and tax tables to calculate the tax owed and the amount of any refund.• Submit Schedule A and the completed 1040.
Scenario—Use form for 2016

• Jacob and Taylor Weaver, ages 45 and 42 respectively, are married and are filing jointly in 2016.o They have three children, Ashley, age 9; Patrick, age 6; and John, age 18.o Social Security numbers are: Jacob, 222-33-4444; Taylor, 555-66-7777; Ashley, 888-99-1234; Patrick, 789-56-4321; John, 123-45-6789.
Jacob is self-employed as a contractor.o 2016 net income: $133,000.o Clients owe him a total of $53,000 for work completed in 2016.o 2016 estimated tax payments: $25,000.

• Taylor works part-time as a paralegal.o She earned $26,000 in 2016.o Federal income withholding: $2,350.• Weavers $350 paid with their 2015 state tax return.• Jacob and Taylor bought their house in 2016.o Home mortgage interest: $7,246.o Property tax: $2,230.

• Charities: $4,500.• $435 to rent a moving truck.• $8,000 to put new siding on the house.• $11,600 for child care expenses ($5,800 for each child).o It was paid to Lil Tigers Daycare, 1115 S. Garrison St., Muncie, IN 47305 (EIN 98-7654321).• Taylor is a part-time student at Ball State University in Muncie.

o She received a 1098-T indicating tuition and fees for 2016 in the amount of $6,011.• Health insurance for the family, through Taylor’s job, cost $6000 for all 12 months of 2016.o They paid deductibles and co-payments of $550.• Dental insurance for the family was $1200.• Car insurance for the family car was $600.

Tax Credits on 1040 to Reduce Tax Liability

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Inclusions, Exclusions, and AGI Assessment 3

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Inclusions, Exclusions, and AGI Assessment 3

Overview

Apply the rules associated with inclusions and exclusions to an individual’s gross income and apply another set of code rules to determine a taxpayer’s AGI.Note: Completing a tax form requires specific steps that need to be executed in a sequence. The assessments in this course are presented in sequence and must be completed in order. Incorrect entries in previous assessments will result in incorrect entries in future assessments. Do not complete Assessment 3 until you have submitted and received faculty feedback for Assessment 2.

Understanding the ever-changing rules for including and excluding income in the calculation of a taxpayer’s adjusted gross income (AGI) for income tax purposes is a skill that is developed through practice.By successfully completing this assessment, you will demonstrate your proficiency in the following course competencies and assessment criteria:

• Competency 2: Analyze the basics of individual income tax return preparation.o Analyze official rules and instructions to correctly calculate deductible self-employment taxes.o Interpret official rules and instructions to record correct entries on tax forms.o Apply rules and instructions to correctly compute AGI for the year.

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Context

I don’t know what to do or where to turn in this taxation matter. Somewhere there must be a book that tells all about it, where I could go to straighten it out in my mind. But I don’t know where the book is, and maybe I couldn’t read it if I found it.” — Warren G. Harding, the 29th President of the United States, 1921–1923.

About now, you may be nodding your head in agreement with President Harding’s quote about the complexity of the tax code, with its many inclusions and exclusions. What started out as a simple document, designed to raise capital to make the new nation independent from the British Empire, has evolved over the centuries and decades into a complex maze of rules and regulations.Nowhere is that more pronounced than in the rules for including and excluding income in the calculation of a taxpayer’s adjusted gross income (AGI) for income tax purposes.

Gross income is commonly defined as the amount of a company’s or a person’s income before all reductions, except that which is specifically excluded by the Internal Revenue Code, before taking deductions or taxes into account. Since not all of an individual’s personal income is subject to taxation, one must crack open the voluminous tax codebook to discover exclusions from the tax collector’s grasp.

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Question to Consider

To deepen your understanding, you are encouraged to consider the questions below and discuss them with a fellow learner, a work associate, an interested friend, or a member of the business community.The primary purpose of the Internal Revenue Service is to raise revenue for the government. However, the U.S. Congress has chosen to exempt certain income from taxation, such as scholarships, gifts, life insurance proceeds, municipal bond interest, and employee fringe benefits.

• Why you believe Congress has provided these exemptions to taxpayers?

• Which of the additional exemptions would you challenge?

• Which of the additional exemptions do you agree with?

Resources

Required Resources

The following resources are required to complete the assessment.

Internet Resources

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Download the appropriate forms and publications from the IRS Web site to complete this assessment.•IRS.gov. (n.d.). Retrieved from http://www.irs.gov/• IRS. (n.d.). Interactive tax assistant. Retrieved from http://www.irs.gov/uac/Interactive-Tax-Assistant-(ITA)-1• IRS. (n.d.). Tax trails. Retrieved from www.irs.gov/Individuals/Tax-Trails%2d%2d%2dMain-Menu

FORM 1040: INCOME

This section of the Form 1040 encompasses the major components of total income and many types of nontaxable income for the filing taxpayer(s). Major components of this section include interest income, dividend income, unemployment compensation, social security benefits, and other types of income received by the taxpayer(s).
Licensed under a Creative Commons Attribution 3.0 License.

FORM 1040: ADJUSTED GROSS INCOME

Filing taxpayers can deduct additional items from total income for purposes of computing AGI. These items are termed “for AGI deductions”, or “above the line” deductions. The line refers to the AGI line on Form 1040.
The major items covered in this section of the Form 1040 are student loan interest, health savings accounts, moving expenses, self-employment taxes, early withdrawals from savings, and deductions for alimony paid.
Licensed under a Creative Commons Attribution 3.0 License.

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Resources

J. K. Lasser Institute. (2015). Your income tax 2015: For preparing your 2014 tax return.

Hoboken, NJ: Wiley.J. K. Lasser Institute. (2014). Your income tax 2014: For preparing your 2013 tax return.

Hoboken, NJ: Wiley.Drake, A. E. (2015, January 5). Reducing your taxes before the end of the year. Mondaq Business Briefing.Vento, J. J. (2014, March).

Beating the tax man. USA Today, 142(2826), 58–59.

Ashton, M. (2015, March 5). The forgotten tax deductions.

Mondaq Business Briefing.

Halperin, D. I., & Warren, A. C., Jr. (2014). Understanding income tax deferral.

New York University Tax Law Review, 67 Tax L. Rev. 317.

Internet Resources

Access the following resources by clicking the links provided.

Please note that URLs change frequently. Permissions for the following links have been either granted or deemed appropriate for educational use at the time of course publication.
lynda.com. (n.d.). Income tax fundamentals: Accounting tutorials. Retrieved from http://www.lynda.com/Business-Accounting-tutorials/Income-Tax-Fundamentals/188210-2.htmlIRS. (n.d.). IRS videos. https://www.youtube.com/user/irsvideos.The IRS has a channel on YouTube devoted to income tax information in a video format. There are numerous videos available to help you with the course assessments. Videos are available with closed captions and in ASL and multilingual versions.

You can search this channel by topic.
Cruz, A., Deschamps, M., Niswander, F., Prendergast, D., Schisler, D., & Trone, J. (2016). Fundamentals of taxation 2016 [with taxation software] (9th ed.). New York, NY: McGraw-Hill.Chapter 3,

“Gross Income: Inclusions and Exclusions.”Chapter 4, “Adjustments for Adjusted Gross Income.”

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Assessment Instructions

Incorrect entries in Assessment 2 affect the entries in Assessment 3.
For this assessment, use information and publications from IRS.gov and the other IRS resources linked in the Resources under the Required Resources heading to determine the adjusted gross income (AGI) for Jacob and Taylor Weaver, based on the provided scenario.

Complete the following:

Read the information in the scenario below.Download the appropriate forms and publications from IRS.gov.Enter information from Assessment 2, Schedules C and SE, into the 1040 form.Apply the rules for adjustments to adjusted gross income.Enter applicable information from the scenario into the 1040 form.Interpret official rules and instructions to record correct entries on the tax form.Calculate the AGI for the Weavers.Submit the tax form.

Scenario

Jacob and Taylor Weaver, ages 45 and 42 respectively, are married and are filing jointly in2016. They have three children, Ashley, age 9; Patrick, age 6; and John, age 18.Social Security numbers are: Jacob, 222-33-4444; Taylor, 555-66-7777; Ashley, 888-99-1234; Patrick, 789-56-4321; John, 123-45-6789. Taylor works part-time as a paralegal.She earned $26,000 in 2016.Taxes withheld: $4,200 withheld.Estimated tax payments: $25,000.$350 paid with their 2015 state tax return.Jacob and Taylor bought their first house in 2016.

Home mortgage interest: $7,246.Property tax: $2,230.Federal income withholding: $2,350.Charities: $4,500.$435 to rent a moving truck.$8,000 to put new siding on the house.$11,600 for child care expenses ($5,800 for each child).It was paid to Lil Tigers Daycare, 1115 S. Garrison St., Muncie, IN 47305 (EIN 98-7654321).Taylor is a part-time student at Ball State University in Muncie.She received a 1098-T indicating tuition and fees for 2016 in the amount of $6,011.Health insurance for the family, through Taylor’s job, cost $6000 for all 12 months of 2016.They paid deductibles and co-payments of $550.

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Depreciation Essay Paper

Depreciation

Depreciation is the allowance given on the wear and tear of property; an income tax is usually set aside for most assets to cater for the cost of assets (Aizenman, Hutchison and Jinjarak, 2013, p.38). The computation is done annually and for depreciation to be done a taxpayer must own the property and make sure that the property is used for business purposes and the property must have a useful life of more than one year.

This is done on tangible assets that lose value such as buildings, machines, vehicles, and equipment. It is also done on intangible property such as copyrights, patents and also computer software. Depreciating starts when the property is put to use for production of income, and it ends when the property fully recovers its cost or can no longer be used to do business (Bhandari, 2014, p. 42).

Property depreciating depends on the method, the property life, the basis of the ownership reduction and also the fact that the taxpayer has listed the property for repayment. Others factors determining depreciating are the first year of depreciation in that some properties don’t qualify for a discount for the first year.

Since dep is a cost, it has to be included in the calculation of the national income. GDP is perceived as the measure of the market good (Bhandari, 2014, p. 42). As such when calculating national income capital depreciation is deducted from GDP. This because it gives us the market value of the property. On the other hand, depreciating is added to national income when computing GDP. In this case, Depreciation is added to the net domestic product as capital consumption allowance to get the gross domestic product. This because depreciation reduces the stock of capital and therefore it must be accounted.

Reference List

Aizenman, J., Hutchison, M. and Jinjarak, Y., 2013. What is the risk of European sovereign debt defaults? Fiscal space, CDS spreads and market pricing of risk. Journal of International Money and Finance, 34, pp.37-59.

Bhandari, R., 2014. An analytical study on depreciation of rupee against dollar & fundamental analysis on impact of macroeconomic factors on exchange rate of rupee. International Research Journal of Business and Management, 2(2), pp.36-43.

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