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Business vehicle deductions
Institutional affiliation

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BUSINESS VEHICLE DEDUCTIONS
Introduction



In this case, my client is a physician who purchased a yacht where he flies a banner with
a medical emblem on it. He informed me that he purchased the yacht and pennant to advertise
the occupation and attract new patients. He requires my assistance in the deduction of the
ordinary and business expenses and the costs of maintaining the yacht. In my solution for him, I
would enlighten him on the tax regulations support and the limit deductions taken. Afterwards
enquire on the substantiate deductions taken, the occasion if the tax return I prepared is audited,
the approach I would use to prioritise the outcomes of the information found during the research
and lastly if the information provided would be useful in any sole proprietorship business.
In this case, there are certain taxes regulations support or limit the deductions taken by
this mobile healthcare business. Depreciation is one of the regulations, where certain measures
need to be met to determine if the property or business activity is depreciating. For instance, the
usage in a business or income-producing activity and the determinable useful life, all these are
claimable depreciation but in properties such as vehicles and machinery are also counted apart
from the property that is held for personal purposes such as this, the medical centre on a yacht.
This means that my client on tax deductions, where the property, is used for investment
and personal purposes, the deductions can only occur on the investment portion. The deductions
can also only be made when my client fully owns the yacht, must be used in an income
generating activity, must possess a determinable useful life and, must have a probability of
lasting more than a year.
BUSINESS VEHICLE DEDUCTIONS 3



In this case, to substantiate the deductions taken, I would ask my client questions that
would help in the deduction of the ordinary and necessary business expenses. Questions such as
if my client has a legal title to the property if he is obligated to pay for the property if he is
responsible for paying the operating and maintenance expenses. If he is liable to any taxes on
the property and lastly if he will be liable for the risk of loss in case of destruction of the
property, diminishing of the property value through exhaustion. The deductions taken should be
based on the depreciation of the property based on the beginning point all the way to the last
point. This means determining if the property is placed in service, if it is idle property, if the
costs are fully covered and what would happen if my client decides to retire from the business
entity.
If the tax return I prepared for my client gets audited, I will start questioning the IRS and
demand for reasons as to why I/we were audited. I would start ruling out various possibilities
such as the related examinations where the report involves transactions where someone else is
audited if there were automatic flags where the computer program finds scores on returns, for
instance, the above average withholding. Lastly, random selection in the tax return, I received
after being audited, there should be numbers that inform me about the issues with the tax return,
and therefore it would help me in building up a starting point on the auditing to narrow the focus.
This will help in knowing what documents to start on.
In this case, if my tax returned was audited, determining the type of tax audits and
deducing methods on how to deal with it would be a great help and starting point. In this process,
I would determine if the situation needs a tax lawyer. In this case, scenario, where it is a small
medical health care centre on a yacht, there would be possibilities of a field audit where an IRS
agent comes to the yacht and conducts the audit in person. As well as an office audit where the
BUSINESS VEHICLE DEDUCTIONS 4



IRS service centre asks to bring forth the needed documents to the local IRS office, and the most
appropriate one would be the correspondence audit where the IRS service centre asks for more
information on the tax return prepared where there would be receipts, similar information and
checks involved.
The last part will be gathering the documents needed if the tax audit is wrong or
unnecessary. This involves going through the yacht medical records to find the needed receipts
and documents. This is important because the audit office won’t allow the excuse of missing or
lost records. Lastly, by determining if the situation needs professional tax lawyers, they would
help with the audit process
Question 4
The approach that would be most appropriate for the information gathered during the
research would know why my client’s number came up as each return is assigned a certain
number score that is brought about by the determination of the position, how far below or above
the average each of the deductions is. Every deduction taken is varied from the norm is added
together as the total amount will determine the numerical score.
Through recent experiences, the scoring system will help determine if the score of the
taxes went up by high auto expenses, low gross profit margin, high travel, and entertainment, the
number of autos used in the business and the little or no profit from the medical centre. The
interest expense is a high-risk audit item that shows the deductibility of the personal interest and
its phasing out. The research done has helped in knowing that the higher the number of the
deductions differs from the numbers computed by the IRS, the higher the chance of error on the
return. This means that the high scores are the ones likely to be audited.
BUSINESS VEHICLE DEDUCTIONS 5
In this research phase, I would make sure that the approach followed would be organised,
provision of the needed documents to support the deduction being questioned, not to provide the
IRS agent with less or more information than is required. As well as answering the questions
vividly and clearly, not giving the IRS the only or original copy of the document and leaving the
original document with the IRS. In addition to insisting on getting copies of all the information
that my client and I sign and lastly, waiting until there is time to review the document before
being signed.
All this information will be useful if I run a sole proprietorship because I would be
informed of the self-employed tax obligations where there is the occasional filing of annual
return and the estimated pay tax quarterly. If I were to take on this, I should be aware of the selfemployed
tax and income tax. The SE tax is a Medicare tax and social security appropriate for
the sole proprietorship setting. Before determining the allegations on the income tax and the selfemployment
tax, I should be able to figure out the loss or profit from my business. This is
deduced by subtracting the business expenses from the business income.
If the expenses are more than the income, it is a definite loss. Filing a tax return is
necessary if the net earnings were $400 and above. Regardless of making fewer earnings than
$400, it is still appropriate to file an income tax return record for assurance if the tax return is
audited.
Filing the annual return on the small business would be done using a Schedule C or a
Schedule C-EZ where the report of the income regarding loss or gains would be operated in a
professional strategy as a sole proprietor. The small business and the employees, who spend
about $5,000, or less, such as I, will benefit more from the schedule C-EZ. To report the social
BUSINESS VEHICLE DEDUCTIONS 6
security and Medicare taxes, I should file under schedule SE. This will help in calculating the
amount of Medicare taxes and social security taxes I would have paid within the year. My
business structure should be based on deciding the form of business entity that I wish to
establish. It will include the deduction of the form of the income tax form that is required to be
filed.
BUSINESS VEHICLE DEDUCTIONS 7
References
(Retrieved on August 2017) from
https://www.irs.gov/publications/p946/ch01.html#en_US_2016_publink1000107327
(Retrieved on August 2017) from https://www.irs.gov/credits-deductions/individuals/deductingdepreciation-and-amortization
(Retrieved on August 2017) from https://www.irs.gov/businesses/small-businesses-selfemployed

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