ACCT 553 Week 4 You Decide

ACCT 553 Week 4 You Decide

You are a CPA with an office in NearLakes City and clients consisting primarily of professionals, entrepreneurs, and small business owners. John Smith, Esq., a practicing attorney with offices near yours, walks in your office and wants advice from you relating to a recent influx of cash he received as a result of winning a large jury verdict on behalf of his client in a personal injury case. His wife Jane Smith accompanies him during your meeting because she has some additional tax planning advice to ask of you.
John?s Tax Issues
1. (a) How is the $300,000 treated for purposes of federal tax income?
(b) How is the $25,000 treated for purposes of federal tax income?
(c) What is your determination regarding reducing the taxable amount of income for both (a) and (b) above?
(d) Is it more beneficial to continue leasing the business space or to buy the building?
Jane?s Tax Issues
2. (a) What are the different tax consequences between paying down the mortgage (debt) and assuming a new mortgage (debt) for federal income tax purposes?
(b) Can John and Jane Smith utilize a 1031 tax exchange to buy a more expensive house using additional money from John’s case?
What is a 1031 Tax Deferred Exchange?