The most important thing when preparing tax is free and clear communication from the tax preparer. The client is correct to ask questions even those he thinks not to be important. Failing to respond to clients questions on the part of tax preparer is not ethically correct. This memo will give the steps and reasons used in arriving at the taxes imposed on income tax of the employer.
Gain from sale of residence.
The tax preparer was not correct in including the $ 350,000 gain from the sale of residence. Being a couple you as the client is qualified for tax exclusion since $350,000 is within the possible tax exclusion on sale of joint residence by couple of $500,000. The exclusion of gain from sale is found in the 26 U.S Code 121.
The taxpayer provided services in the combat zone and was therefore eligible to tax benefits. As a taxpayer therefore it was not correct for the combat to be included in the gross income. Under the U.S code 112 an enlisted noncommissioned personnel should have his gross income without inclusions of the compensation that they received as member serving in the area considered as combat zone. Incase the area ceases to be a combat zone then the taxpayer need to be informed of such changes.
Roth IRA distributions:
The Roth IRA distributions had first satisfied the 5-year rule till its withdrawal. The IRA is considered to be an ordinary income and always subjected to income tax. The only penalty that can be enforced on IRA distribution is if the withdrawal id done while the IRA owner is under the age of 59.5. The Roth IRA for taxpayer is considered to be a qualified distribution since it occurred after 7 years, implying that it had met the 5 year rule. Under code 408 the tax payer will be able to get all the information concerning IRA distribution qualifications (Bittker & Lokken, 2006).
Student Loan forgiveness.
The taxpayer was not wrong when the student loan forgiveness was included in the gross income. Under the US code 970 it is stated that in the case whereby a person is responsible for making a loan repayment then it is a requirement that the amount cancelled is included in the taxation of gross income up to $17,500. The $10,000 loan forgiveness felt within the required amount of $17,500.
There is need for all professions in the accounting fields to be ethically upright since the services they offer are relied upon by people who do not have the required knowledge in the field of accounting. It is a requirement on the part of tax preparer to ensure that all their employers have a clear understanding of the tax options that can be available to them. The step I have taken to give the detailed information to the client about the reason why some of the items were included in his gross income is a way of practicing clarity as required by law (McGee, 2008). The client would feel satisfied when they are referred to the codes that give a guideline on how some elements in the gross income are arrived at.
McGee, R. W. (Ed.). (2008). Taxation and public finance in transition and developing economies. Springer Science & Business Media.
Bittker, B. I., & Lokken, L. (2006). Federal Taxation of Income, Estates, and Gifts (No. 1). Warren, Gorham & Lamont.
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