AFM362 Chapter Notes - Chapter 1: Reverse Onus, Snapple

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lemonbeetle804

16 Dec 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM362

Professor

Andy Bauer

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Document Summary

The practice of taxation: there are essentially four extensive areas of tax practi ce: Compliance: compliance includes the preparation and review of personal and corporate tax returns. Tax planning: planning in order to maximize return after considering all taxes and all costs. Legal interpretation: involves the interpretation of tax laws and the research of tax cases and court decisions. Tax appeals and tax litigation : requires knowledge of complia nce and the legal interpretation of tax laws. The role of accountants: accountants mainly participate in the compliance and planning areas of tax, while also having a minor role in tax appeals and litigation. The role of lawyers: lawyers mainly participat e in the legal interpretation and tax appeals and litigation areas of tax, while also having a minor role in tax planning. Head tax: a tax on the existence of a particular type of taxpayer, such as a tax of paid by all individuals over the age of 18.

Related Questions

First discussion question

Read the belowAICPA article.

President Barack Obama releasedhis last proposed budget, for the governmentâs 2017 fiscal year,on Tuesday February 9. Itcontains tax provisions affecting education, health care, andretirement, as well as proposing extensive changes affectingbusinesses. Many of the changes and areas should now be familiar toyou - Sec. 179, reducing tax benefits for high-income taxpayers,simplified accounting for small businesses, incentives to bringjobs back to America, and last week's discussion of foreign earnedincome for corporations.

Pick a few of the proposals youagree with, plus several you disagree with, and discuss thereasons?

Second Final Question<

First, there is no such thing asa tax "loophole" - they are called deductions. Remember that ALLincome is taxable, unlessspecifically excluded by law. And ALL expenses are disallowedunless specifically included by law.

We have a tax system that triesto modify taxpayer behavior by changing the tax rates on income,and by allowing or disallowing certain types of deductions. But ourtax system is not collecting enough revenue to cover governmentexpenditures. Some think corporations are paying too much, but ifthey don't pay, then the individual taxpayer has to pay. However,as we now know, the individual taxpayer already carries themajority of the tax burden, and if the wealthiest don't pay theirfair share, the middle and lowest earners have to pay. The bottomline is someone has to pay - the question is how to make thatequitable. Is it as simple as having a flat tax forindividuals?

AICPAARTICLE

Presidentâs budget proposes manytax changes By Alistair M. Nevius, J.D. February 9, 2016President Barack Obama released hislast proposed budget, for the governmentâs 2017 fiscal year, onTuesday. It contains tax provisions affecting education, healthcare, and retirement, as well as proposing extensive changesaffecting businesses. The budget presents a wish list of changesthe administration would like to see enacted; however, theRepublican-held Congress is unlikely to support much of thepresidentâs plan. Among the many proposed tax changes are thefollowing: Earned income tax credit The budget proposes expandingthe Sec. 32 earned income tax credit for taxpayers who do not havea qualifying child (including noncustodial parents). The amount ofthe credit available to these taxpayers would increase to roughly$1,000. The credit would also be made available to workers who areages 21â24 and ages 65 and 66. It also would create a newsecond-earner tax credit of up to $500 for married couples in whichboth spouses work. The credit would be phased out for couples whoseadjusted gross income (AGI) exceeded $120,000. Child and dependentcare credit The budget would essentially triple the amount of thechild and dependent care credit to $3,000 per child for familieswith children under the age of 5. It would also increase thephasedown limit so that it does not apply to taxpayers with annualAGI of less than $120,000. (The credit is currently phased down fortaxpayers with AGI above $15,000.) However, the budget would alsoeliminate flexible spending accounts for child care expenses.Education credits The budget proposes folding the Sec. 25A lifetimelearning credit into the American opportunity tax credit. It wouldalso expand the American opportunity tax credit to make itavailable for five years and refundable up to $1,500. (Currently,it is available for four years and is refundable up to $1,000.)Pell Grants would be exempt from taxation and from the Americanopportunity tax credit calculation, and student loan forgivenesswould no longer be considered to result in taxablecancellation-of-debt income. Community colleges The budget wouldcreate a new $5,000 tax creditâcalled the community collegepartnership tax creditâfor employers that help community collegesfill their investment shortfalls and that hire qualifying communitycollege graduates. Presidentâs budget proposes many tax changesPage 1 of 4http://www.journalofaccountancy.com/news/2016/feb/budget-proposes-many-tax-changes-201613856.html2/10/2016 The budget calls for funding of a program calledAmericaâs College Promise that would create a federal-statepartnership to make two years of community college free. Retirementsavings The proposed budget includes a number of proposals that aredesigned to increase access to retirement plans and to makeportability of retirement savings and benefits easier. Theseinclude requiring employers with more than 10 employees that do notoffer a retirement plan to automatically enroll their employees inan IRA. Businesses with fewer than 100 employees would get taxcredits of up to $4,500 for offering automatic IRA enrollment.Reducing tax benefits for high-income taxpayers The budget wouldlimit the value of certain deductions and exclusions from AGI andall itemized deductions. The proposal would reduce to 28% of thevalue of the specified exclusions and deductions that wouldotherwise reduce a taxpayerâs taxable income in the 33%, 35%, or39.6% tax brackets. The definition of net investment income wouldbe expanded to include gross income and gain from any trades orbusinesses of an individual that is not otherwise subject toemployment taxes. The budget also proposes an implementation of theso-called Buffett rule (called a âFair Share Taxâ in the budget),which would require high-income taxpayers to pay at least a 30% taxrate (after charitable contributions). Capital gains tax Under thebudget, the maximum capital gains tax rate would increase to 28%(inclusive of the 3.8% net investment income tax). It would alsoeliminate basis step-ups on gifts and bequests by treatingtransfers of appreciated property as a sale, so that the donor or deceased owner wouldrealize a capital gain on the transfer. The budget would also taxcarried interests at ordinary income tax rates instead of ascapital gain. Corporate tax reform The budget would cut thecorporate tax rate to 28%. It would also impose a 19% minimum taxon foreign earnings, which would be imposed when the earnings areearned. As a transition to the minimum tax, previously untaxedforeign income would be subject to a one-time 14% tax. The budgetwould also provide further rules against earnings stripping andcorporate inversions. Incentives to bring jobs to the United StatesThe budget proposes to provide a tax credit equal to 20% ofeligible expenses to businesses that reduce or eliminate a line ofbusiness currently conducted overseas and start up, expand,or otherwise move the same trade orbusiness to the United States. Sec. 179 expensing The budgetproposes increasing the maximum Sec. 179 expensing limitation to $1million and to index it for inflation (the phaseout threshold wouldremain $2 million, indexed for inflation). Simplified accountingfor small business Presidentâs budget proposes many tax changesPage 2 of 4http://www.journalofaccountancy.com/news/2016/feb/budget-proposes-many-tax-changes-201613856.html2/10/2016 The proposed budget would create a uniform small businessaverage annual gross receipts threshold of $25 million for allowingexceptions from certain accounting rules. Eligible businesses wouldbe allowed to use the cash method, avoid the uniform capitalizationrules, and use an inventory accounting method that either conformsto their financial accounting method or otherwise properly reflectsincome. Startup expenses Under the budget proposal, the limit ondeductible startup expenses would be increased to $20,000 (from$5,000). This amount would be reduced (but not below zero) by theamount by which those expenditures exceed $20,000 (currently$50,000). Research credit The budget would do away with the currentbifurcated Sec. 41 research credit, under which eligible taxpayerscan claim either a 20% regular credit or a 14% simplified credit.Instead, the budget proposes to create a single formula with acredit worth 18%. Increase intobacco tax The budget would increase taxes on tobacco to fund aninitiative to expand access to preschool and to expand homevisiting programs by nurses, social workers, and otherprofessionals. Clean energy The budget would simplify, expand, andmake permanent several tax incentives for clean energy investment.It would also create two new tax credits to provide an incentivefor commercial deployment of carbon capture, utilization, andstorage. The budget would also eliminate $4 billion a year in taxsubsidies to oil, gas, and other fossil fuel producers. Cadillactax The budget proposes changes to the Sec. 4980I excise taxon high-cost employer-sponsored health coverage (known as theCadillac tax). The Cadillac tax has been the focus of repealefforts in Congress, and the recently enacted ConsolidatedAppropriations Act, 2016, P.L. 114-13, postponed its effective dateto 2020. (It was originally scheduled to take effect in 2018.)Under the proposal, the threshold above which the tax applies wouldbe modified to be equal to the greater of the current law thresholdor the average premium for a marketplace gold plan in each state.This is designed to protect employers from paying the tax justbecause they are in a high-cost state. Estate tax The budgetproposes to revert the estate tax to its form in 2009, with a 45%tax rate, a $3.5 million exclusion amount for estate andgeneration-skipping transfer tax purposes, and a $1 million gifttax exclusion (with no indexing for inflation). The budget wouldalso expand the property subject to the new basis reportingconsistency requirement under Sec. 1014(f) to include propertyeligible for the estate tax marital deduction and gifts required tobe reported on a federal gift tax return. Oil tax Presidentâsbudget proposes many tax changes Page 3 of 4http://www.journalofaccountancy.com/news/2016/feb/budget-proposes-many-tax-changes-201613856.html2/10/2016 The budget proposes a $10.25-per-barrel âfeeâ on oil. TheOffice of Management and Budget estimates that this provision wouldraise $319 billion over 10 years.

erinduck149

Tax Strategies for Business Planning andInvestment

Tax Planning Case II: Entity Selection

Weâve received an inquiry from a client and weâd like you todraft a memorandum indicating how we should respond to these clientinquiries. The inquiry concerns the formation of a business and ouranalysis of the impact various entity types might have on thebusiness.

Please format your memorandum to Identify significant tax andnontax issues or concerns that may differ across entity types anddiscuss how they are relevant to the choice of entity decision forthe clientâs business. Include a brief summary of the inquiry, youranalysis of the inquiry, the issues posed, any relevantcomputations and your recommendations. Please include yourcomputations directly in your memorandum and do not attach them ina separate Excel spreadsheet.

Please format the memorandum as follows:

MEMORANDUM

To: Eugene Kilo, Smith TaxConsultants

From: [Team members, provide your own titles]

Re: Various Tax Matters

Date: [Applicable Date]

Martha Taylor is currently employed by the Maryland Chamber ofCommerce. While she enjoys the relatively short workweeks, sheeventually would like to work for herself rather than for anemployer. In her current position, she deals with a lot ofsuccessful entrepreneurs who have become role models for her.Martha has also developed an extensive list of contacts that shouldserve her well when she starts her own business.

It has taken a while but Martha believes she has finallydeveloped a viable new business idea. Her idea is to design andmanufacture cookware that remains cool to the touch when in use.She has had several friends try out her prototype cookware and theyhave consistently given the cookware rave reviews. With thisencouragement, Martha started giving serious thoughts to makingâCool Touch Cookwareâ (CTC) a moneymaking enterprise.

Martha had enough business background to realize that she isembarking on a risky path, but one, she hopes, with significantpotential rewards down the road. After creating some initial incomeprojections, Martha realized that it will take a few years for thebusiness to become profitable. After that, she hopes the skyâs thelimit. She would like to grow her business and perhaps at somepoint âgo publicâ or sell the business to a large retailer. Thiscould be her ticket to the rich and famous.

Martha, who is single, decided to quit her job with the stateChamber of Commerce so that she could focus all of her efforts onthe new business. Martha had some savings to support her for awhile but she did not have any other source of income. Martha wasable to recruit Linda and Mike to join her as initial equityinvestors in CTC. Linda has an MBA and a law degree. She wasemployed as a business consultant when she decided to leave thatjob and work with Martha and Mike. Lindaâs husband earns around$300,000 a year as an engineer (employee). Mike owns avery profitable used car business. Because buying andselling used cars takes all his time, he is interested in becomingonly a passive investor in CTC. He wanted to get in on the groundfloor because he really likes the product and believes CTC will bewildly successful. While CTC originally has three investors, Marthaand Linda have plans to grow the business and seek more owners andcapital in the future.

The three owners agreed that Martha would contribute land andcash for a 30 percent interest in CTC, Linda would contributeservices (legal and business advisory) for the first two years fora 30 percent interest, and Mike would contribute cash for a 40percent interest. The plan called for Martha and Linda to beactively involved in managing the business while Mike would notbe.

The three equity ownersâ contributions are summarized asfollows:

Martha Contributed	FMV	Adjusted Basis	Ownership Interest
Land (held as investment)	$120,000	$70,000	30%
Cash	$30,000

Linda Contributed
Services	$150,000		30%

Mike Contributed
Cash	$200,000		40%

Working together, Martha and Linda made the following five-yearincome and loss projections for CTC. They anticipate the businesswill be profitable and that it will continue to grow after thefirst five years.

Cool Touch Cookware

5-Year Income and Loss Projections

Year	Income (Loss)
1	($200,000)
2	($80,000)
3	($20,000)
4	$60,000
5	$180,000

With plans for Martha and Linda to spend a considerable amountof their time working for and managing CTC, the owners would liketo develop a compensation plan that works for all parties. Down theroad, they plan to have two business locations (in differentcities). Martha would take responsibility for the activities of onelocation and Linda would take responsibility for the other.Finally, they would like to arrange for some performance-basedfinancial incentives for each location.

To get the business activities started, Martha and Lindadetermined CTC would need to borrow $800,000 to purchase a buildingto house its manufacturing facilities and its administrativeoffices (at least for now). Also in need of additional cash, Marthaand Linda arranged to have CTC borrow $300,000 from a local bankand to borrow $200,000 cash from Mike. CTC would pay Mike a marketrate of interest on the loan but there was no fixed date forprincipal repayment.

emeraldbadger318

Please edit and rewrite the following in YOUR OWN WORDS... sothat it cannot be passed as plagiarism. Also, it needs to passturnitin.com inspection. I am just asking for a very skillfullrewording of this passage that is distinguishably and uniquelydifferent.

What is a CPA?

A CPA, or Certified Public Accountant, is a designation reservedfor accountants in the US who pass the CPA exam. This designationshows an expertise in the field. To become a CPA in the US, astudent must pass the exam and meet other state requirements suchas gaining a certain amount of work experience or furtherededucation. The CPA licenses accountants to provide their servicesto the general public. The CPA designation is taken very seriously,as its requirements maintain that only the most knowledgeableaccounts can qualify. The designation is usually used behind apersonâs name to signify the level of experience, and is often apunishable offense if it is used without actually passing the examand requirements.

The CPA Exam Requirements

International students who want to become an expert inaccounting and achieve the CPA designation will first need to passthe CPA exam. The exam is certainly not easy and tests many of themost important accounting principles. The exam is called theUniform CPA exam, and the eligibility to actually take the examdepends on the exact state the student plans to test in. There arethree main requirements for taking the CPA Exam. They arecategorized as the 3 Eâs: Exam, Education, and experience. One ofthe main qualifications to sit for the exam is advanced education.Undergraduate degrees carry 120 credit hours. The CPA exam usuallyrequires 150 credit hours. This means students will have to achieve30 hours of graduate level coursework. It most cases, aninternational student will take the 30 extra hours and thencomplete a few extra classes to earn a masterâs degree inaccounting. The exam also tests some of the laws of the stateincluding contract and state laws and often tests the knowledge offederal laws as well. The third requirement to sit for the exam isusually some type of experience in the field of accounting. Whilenot mandatory in all states, some states require that a CPAcandidate have 2 years of work experience in accounting or taxpreparation. Some states only require general experience inaccounting.

Learn What a CPA Does

While the main function is to offer public accounting services,the CPA designation can allow accountants to do many other things.One of the main functions of a CPA is auditing, either for a smallor large business. Auditors go through financial statements andmake sure there are no discrepancies. Many CPAs go on to theexecutive levels for companies, as either CFOs or CEOs. Inaddition, many CPAs work in the tax field working income taxes andfederal and state taxes for small or mid-sized companies. Otherroles of CPAs include financial analysts, financial planners,forensic accountants, Management consulting, estate planning andcorporate finance.

The Many Benefits of Becoming a CPA

Certified public accountants are at the top of their field.Students interested in studying accounting should give seriousconsideration about getting the CPA in the US. In order to grow inan accounting career a CPA designation is almost necessary. Inaddition, CPAs will usually get paid higher. Those with a masterâsdegree and CPA will see their salary go up even higher. Inaddition, being a CPA in the US will open the door for so many morecareer opportunities. Accounting professional are a hot commodity,and those with an advanced degree and CPA designation will be onthe top of the list for most employers. Certified publicaccountants in the US have a lot of responsibility, but being atthe top of your field is a great feeling! International studentsinterested in studying accounting will find that becoming a CPA andgraduating with a degree in accounting will allow them to chasethere dream, whatever it may be, because it is such a versatilecareer and skillset.

What types of skills will I need?

To begin a successful career in accounting, you will need todevelop a wide array of knowledge, skills and competencies, rangingfrom a strong understanding of accounting and business concepts toeffective leadership and communication skills. You will also needto have a broad business perspective, which will enable you to "seethe big picture" of the internal and external factors that impacthow a business operates. Technology will also be a major enablerthroughout your career, so it's critical to stay abreast of andutilize new computer applications and systems as necessary.

Problem-solving, analytical and researchskills - You should be able to analyze, compare andinterpret facts and figures. The ability to identify and solveunstructured problems in an unfamiliar setting and provideinsightful consulting advice is a valued quality. Creative thinkingwill help you face issues on a daily basis and generate innovativesolutions. Also, it is essential to be able to effectively andefficiently research, organize and report on technical and/orindustry specific issues utilizing print, electronic or humansources.

Personal skills -Accounting is a service activity, and you will have to work well inteams as well as in one-on-one situations. Critical to anyorganization's success is the ability to lead, motivate and empowerteams to attain clear, concrete, timely and measurable results.

Strong communication skills including the ability tobe a good listener- You will becalled upon to persuasively present, discuss and defend your viewsboth formally and informally, in writing and verbally. Clients andco-workers will present you with issues and questions you will needto interpret and respond to quickly. The ability to show empathyand sensitivity to their situations will position you in afavorable light and earn their respect and trust.

Understand emergingtechnologies- You need to keepcurrent on emerging technologies like e-commerce, image processingand workflow technology, and understand how these impact businessoperations and the use of information for decision making. Youshould know how to use the Internet, e-mail and discussion boards,as well as be familiar with the latest spreadsheet, database, wordprocessing, accounting, and business and presentation softwarepackages.

Broad BusinessPerspective- You need a keenbusiness sense and an awareness of current events, both locally aswell as globally. As a key business partner to clients and/orcompany management, you add value to the organization by makingappropriate recommendations based on your understanding of companyoperations, policies, practices and competitive factors.

AFM362 Chapter Notes - Chapter 1: Reverse Onus, Snapple

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