Week from 2 to 4

WEEK 3

Discussion # 1

Please explain the difference between a file memo and a client letter and when each would be used.  Then choose a research case from the end of chapter 11 that hasn't been assigned elsewhere and practice writing a file memorandum or a client letter to a tax-sophisticated client or a client letter to a unsophisticated client and include it in your post. 

Comment #1 to SD

Please include ONE reference

Ch. 11 5RC

Sally incurred a 90-mile round-trip commute every day, mainly because she could not get along with her supervisor at the sales office located four miles from her home. Sally works under a one-year contract, and her assignment to the nearer office is affirmed in the current year's contract, but management has allowed her to travel to the further location. How many deductible commuting miles does Sally accumulate on a workday?

 

     A memorandum (memo) is a precise note that is used to inform or advise the members within the same organization. Such management letters have been found to increase the like-lihood that the client will adopt recommendations for improvements in these areas (Egon, 1966). Many businesses deal with a number of external parties such as customers, clients, suppliers, government agencies, manufacturers, societies, etc. for which a different tool of communication is used, called as a business letter. A client letter refers to a brief message sent by the company to the person or entity. Understanding both clients’ needs, and the tax law is critical to accounting students' future professional success (Nellen, 2016). 

 

Memo	Client Letter
Memo refers to a short message, written in an informal tone for interoffice circulation of the information.	Letter are a type of verbal communication, that contains a compressed message, conveyed to the party external to the business.
Informal and Concise Nature	Formal and Informative Nature
Exchanged between departments, units or superior subordinate within the organization.	Exchanged between two business houses or between the company and client.
Short Length	Comparatively Long Length
Signature is not required in a memo.	A letter is duly signed by the sender.
One to many communication	One to one communication
Use of technical jargon and personal pronoun is allowed.	Simple words are used and written in third person.

 

Client Letter

Subject: Deductible miles

Dear Sally,

I appreciate the opportunity to advise you regarding this tax matter. To ensure a complete understanding between us, I am setting forth the pertinent information about the advice that I will be rendering. You incurred a 90-mile round trip of which 4 miles will is towards nearer sales office from where she could get along with her supervisor at the sales office. As distance of 4 miles is towards office, you could travel with supervisor and save 4 miles. hence deductible commuting miles are 86 miles.

Please let me know if you wish to discuss any of these issues further. I look forward to assisting you in the future when you need tax advice.

Kind regards,

Shayonna

References

Egon, V. K. (1966). Management letters for clients of small accounting firms. Journal of 

     Accountancy (Pre-1986), 121(000002), 33. Retrieved from 

     https://search.proquest.com/docview/198198362?accountid=35796

Nellen, Annette, CPA,C.G.M.A., Esq. (2016). The client tax letter project: Client communication 

     for tax professionals. The Tax Adviser, 47(8), 588-590. Retrieved from 

     https://search.proquest.com/docview/1810877218?accountid=35796

Comment #2 to KC

Please include ONE reference

A file memorandum is used by the tax research to present the results of the research process. Tax professionals document the results of their research in internal “memos to file” in order to support their work (KPMG, 2020) In the other hand a client letter is utilized to communicate the tax research results to the client. While both the file memo and the client letter are forms of communications utilized in the tax research process, a key difference between the file memo and client letter is their audience, the file memo is addressed to other tax professional while the client letter is addressed to the client. Since client letters are addressed to the client there are a couple of elements that must be included that are not in file memos such as salutation and request for follow-up meetings. Another difference is that file memos in most cases utilize a standardized memo format while letters do not.

            The research case I selected is No. 20:

 

Keirisse, Colon, Santiago and Colon CPAs

Lakeland, Fl

September 16, 2020

Relevant Facts

Lilly leases a car that she uses solely for business purposes. The car would be worth $40,050 on the market, and Lilly paid $7,400 in lease payment this year.

Specific Issues

How are these items treated on her tax return?

Conclusions

Lilly can deduct the $7,400 in lease payment on her tax return.

Support

The IRS states that a lease of a vehicle for business purposes you may choose to deduct either the lease costs or the standard mileage. Claim actual expenses, which would include lease payments. If you choose this method, only the business-related portion of the lease payment is deductible (IRS, 2020). Lilly utilizes the car solely for business purposes, which will allow the deduction of $7,400 in lease payment on her tax return.

Actions to be taken

Prepare letter, review results with client

Preparer: Keirisse Colon

Reviewer: Robert Santiago

 

References:

IRS. (2020). Leases. https://www.irs.gov/faqs/small-business-self-employed-other- business/income-expenses/income-expenses-5

KPMG. (2020). Module 3: How to write a tax research memo.

https://www.kpmguniversityconnection.com/University/view/curriculum/?module_id=96

Discussion #2

Can an individual make a contribution to an IRA based on unemployment compensation proceeds received?  What specifically would you convey to your client based on your tax research results?

Comment #1 to SD

Include One Reference

IRA is individual retirement arrangements that includes salary, wages, or individual retirement arrangements. IRA can be in the form of stocks, bonds, and mutual fund. According to (Clayton, Clayton, Davis, & Fielding, 2014) for workers who qualify, taxation and retirement acts passed by the United States Congress provide an opportunity to structure two types of tax advantaged individual retirement plans: A Traditional Individual Retirement Account (IRA) and a Roth IRA. Even though both the IRA and Roth IRA have the same general purpose-providing a means for retirement wealth accumulation-their differing characteristics in terms of tax treatment and distribution requirements make them individually unique (Al Zaman, 2008). The earnings from Roth IRA investments are exempt from taxation and there is no required minimum distribution from the account (Clayton, Clayton, Davis, & Fielding, 2014). Also, an individual can contribute to IRA based on unemployment compensation proceeds received and is used to earn income and have retirement savings. 

     There are two known types of IRA which is Traditional and Roth IRA. You can only make contributions to traditional and Roth contribution. In traditional IRA an individual can claim deductions from income and therefore no tax on it but once an individual withdraws from the IRA account, it is taxable as income. Roth IRA on the other hand is not tax deductible. Tax-deferred account (IRA) contributions from wages are exempt from personal income taxes (Welch, 2016). Distributions are taxed as personal income (Welch, 2016). After age 701⁄2 IRA distributions are forced by the IRS’s required minimum distribution (RMD) (Welch, 2016).

References

Al Zaman, A. (2008). Reconsidering IRA and Roth IRA: Keeping bequests and other options in 

     mind. The Journal of Wealth Management, 11(2), 82-92,6. Retrieved from 

     https://search.proquest.com/docview/237041893?accountid=35796

Clayton, R., Clayton, L., Davis, L., & Fielding, W. (2014). Converting to a Roth IRA with taxes 

     paid from corpus of the traditional IRA. Journal of Applied Finance, 24(1), 111-116. 

     Retrieved from https://search.proquest.com/docview/1628300357?accountid=35796

Welch, James S., Jr. (2016). Measuring the financial consequences of IRA to Roth IRA 

     conversions. Journal of Personal Finance, 15(1), 47-55. Retrieved from 

     https://search.proquest.com/docview/1771698668?accountid=35796

Comment # 2 to FM

Include one reference

Hello Professor and classmates,

The primary question for a person interested in making a regular contribution to the IRA is whether that person receives any type of compensation. A compensation or earned income is required to contribute to the Traditional and/or Roth IRA. For purposes of eligibility to make a regular IRA contribution, we should investigate what is defined by compensation. According to the Internal Revenue Code, “Compensation means wages, salaries, professional fees, or other amounts derived from or received for personal services actually rendered (including, but not limited to commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, and bonuses) and includes earned income, as defined in Code § 401(c)(2) (reduced by the deduction the self-employed individual takes for contributions made to a self-employed retirement plan).”The code clearly explains that an amount received as a pension, annuity or deferred compensation is not included in this concept. Neither are income from capital gains, nor interest and dividends received. The opinion of the court in the cases dealing with this matter is that unemployment compensation, and Social Security benefits are considered "amount received as a pension or annuity." (Slott, 2014) Therefore, they are excludable for the purposes of IRA contributions.

References

IRS. (2010). TRADITIONAL INDIVIDUAL RETIREMENT ARRANGEMENTS (Traditional IRAs) . Retrieved from IRS Web Site: https://www.irs.gov/pub/irs-tege/tira_lrm.pdf

Slott, E. (2014, December 7). What qualifies as compensation? Retrieved from https://www.investmentnews.com/: https://www.investmentnews.com/what-qualifies-as-compensation-60101#:~:text=To%20qualify%20for%20an%20IRA,for%20making%20an%20IRA%20contribution.