Question

In January of the current year, Don and Steve each invested $100,000 cash to form a corporation to conduct business as a retail golf equipment store. On January 5, they paid Bill, an attorney, to draft the corporate charter, file the necessary forms with the state, and write the bylaws. They leased a store building and began to acquire inventory, furniture, display equipment and office equipment in February. They hired a sales staff and clerical personnel in March and conducted training sessions during the month. They had a successful opening on April 1, and sales increased steadily throughout the summer. The weather turned cold in October, and all local golf courses closed by October 15, which resulted in a drastic decline in sales. Don and Steve expect business to be very good during the Christmas season and then to taper off significantly from January 1 through the end of February. The corporation accrued bonuses to Don and Steve on December 31, payable on April 15 of the following year. The corporation made timely estimated tax payments throughout the year. The corporation hired a bookkeeper in February, but he does not know much about taxation. Don and Steve have retrained you as a tax consultant and have asked you to identify the tax issues they should consider.

Answer 1

Answer:

Tax issues pertaining to deductions:

According to code section 179 which expresses that the qualifying software or equipment bought during the year entitles the business for full purchase price deduction from the gross income . Hence organization needs to attempt cost recovery technique, where hybrid strategy will be picked as a overall method . Anyway for buy and sale of stock accrual method should be attempted.

Since the golf business is commonly occasional in nature . Subsequently organisation need to have great deal of adaptability so as to choose calendar or financial year. In this way the financial year which suits to such sort of business includes Nov 30, Jan 31, Feb 28 financial year.

Hence according to code section 267 if the enterprise attempts accrual method for bookkeeping and both D and S are the family member. Anyway the deduction relating to gathered or accrued bonuses won't be accessible until the year when payment was really made. Consequently if adjustment in payment date isn't being made, it would bring about underpayment relating to estimated payment due to non availability of deduction. Consequently the corporation will be made liable for the penalty under such circumstance.