A client earned in first year of business, in 2015 $50,000 in cash however was told...

A client earned in first year of business, in 2015 $50,000 in cash however was told that the money earned did not have to be claimed however you learned that the client actually earned $190,000 in 2015 in cash.

Is it correct that if you earned all cash it does not have to be reported?

Is the cash that the client made taxable? If so how much?

.What will you tell the client?

What laws govern this situation? (Source)

What penalties are possible? (source for the information)

Expert Solution

1. yes, Its possible that all cash earned cannot be reported. It might be the advance cash eceived for the business doing in next year or the arrears received for the previous years.

2. Yes, the cash earned by the client is taxable. Income tax genrally follows accrual concept. But if client wish to follow cash basis for taxation then it can follow. Assuming, the client also follows accrual basis for accounting of income, taxable amount is $50,000.

3. I will suggest the client that yes reporting of income can be different from the actual received cash. Also, i will suggest the client the method of accounting for the taxability of income.

4. Income tax laws of respective state govern the situation.

5. Penalty will be attracted as per the applicable law of the state if there is underreporting of income.

Note: since name of state is not mentioned then we cannot specify the penalty amount and tax amount.

ekkarill92 answered 2 years ago

3. Suppose Reuben earned a salary of $50,000 in 2015 and $55,000 in 2016. a) The...

3. Suppose Reuben earned a salary of $50,000 in 2015 and $55,000 in 2016. a) The consumer price index was 120 in 2015 and 132 in 2016. What has happened to Reuben’s nominal and real income from 2015 to 2016? Show your work. – b) Suppose Reuben owed student loans that had an interest rate of 3 percent. What was the real interest rate on Reuben’s student loans for 2015-2016. Show your work.

A tract of farm land requires an initial outlay $50,000. The first-year net cash flow is...

A tract of farm land requires an initial outlay $50,000. The first-year net cash flow is $4,000 and will increase 4% annually. The land value will grow 2% annually. A farmer’s real cost of capital is 6% and the anticipated inflation rate is 3%. The farmer pays 20% tax on ordinary income and 15% tax on capital gain. The farmer is considering making the investment on the tract of farm land and holding it for 6 years. Please help the...

During their first year of operations, the partnership earned $140,000.

E12-16 Allocating profits and losses to the partners Polacco and Walsh have formed a partnership. During their first year of operations, the partnership earned $140,000. Their profit-and-loss-sharing agreement states that, first, each partner will receive 10% of their capital balances. The second level is based on services, with $25,000 to Polacco and $15,000 to Walsh. The remainder then will be shared 4:1 between Polacco and Walsh, respectively. Requirements 1. Calculate the amount of income each partner will receive under their profit-and- loss-sharing agreement...

Using Microsoft Excel, construct a monthly proforma cash budget for your client for the first year...

Using Microsoft Excel, construct a monthly proforma cash budget for your client for the first year of operations. Product Selling Prices: Oysters on half shell will sell for $8.25 each (dozen) Fried Shrimp will sell for $10.25 (dozen) Calamari will sell for $4.95 an order Catfish Sandwich will sell for $5.95 Salads will sell for $4.50 each Fries sell for $1.25 per order Sodas sell for $1.75 a bottle Cost of Goods Sold: The Catfish sandwich ingredients (fried catfish, cheese,...

"Calculating Current and Deferred Income" Your client, Dave, is wrapping up his first year of business...

"Calculating Current and Deferred Income" Your client, Dave, is wrapping up his first year of business and needs your help in preparing his taxes. You explain to Dave that a company uses a six-step process to calculate its income tax provision. Identify one of the six steps and describe the step in detail, including an explanation of the issues that should be considered in that step and how it is computed.

The commissions in dollars earned for the first quarter of last year by the 11 members...

The commissions in dollars earned for the first quarter of last year by the 11 members of the sales staff at Master Chemical Company are: 1650, 1475, 1510, 1670, 1595, 1760, 1540, 1495, 1590, 1625, 1510. • Calculate the mean and the standard deviation of the commissions earned. • Calculate the second quartile and the sixth decile.

PB Investments is investing $50,000 for a client into a bond fund paying 4.5% per year...

PB Investments is investing $50,000 for a client into a bond fund paying 4.5% per year and into a stock fund paying 6% per year. PB Investments always places 5% of a portfolio into a noninterest bearing cash account for safety. The amount invested into stocks should be no more than 3 times the amount invested into bonds. At least 25% of the market investment should be in bonds. At least 40% of the return should come from bonds. Formulate...

A labor contract provides a first year (nominal) wage of $50,000 per year, and specifies that...

A labor contract provides a first year (nominal) wage of $50,000 per year, and specifies that the real wage will increase by 4% each year. The CPI is 2.0 in the first year, 2.1 in the second year, and 2.15 in the third year. Please enter your answers as numeric responses rounded to the nearest dollar (ie. 32,900 or $32,900 not 32,900.00 or "Thirty-two thousand nine hundred dollars"). What is the real wage for the first year of this contract?...

For a new product, sales volume in the first year is estimated to be 50,000 units...

For a new product, sales volume in the first year is estimated to be 50,000 units and is projected to grow at a rate of 7% per year. The selling price is $100 and will increase by $10 each year. Per-unit variable costs are $22 and annual fixed costs are $1,000,000. Per-unit costs are expected to increase 4% per year. Fixed costs are expected to increase 10% per year. Develop a spreadsheet model to predict the net present value of...

Go.co Company has the following financial information for its first year in business: cash of $242,...

Go.co Company has the following financial information for its first year in business: cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of $3,408, accounts payable of $700, short-term notes payable of $740, long-term liabilities of $1,100, common stock of $1,160, retained earnings of $1,620, net sales of $2,768, cost of goods sold of $1,210, depreciation of $360, interest expense of $160, taxes of $312, addition to retained earnings of $508, and dividends paid of $218....

Question