Tax Preparation in the USA Essay Example | Topics and Well Written Essays - 750 words

Tax Preparation in the USA - Essay ExampleThis paper looks and discusses how tax preparations are done with the help of accounting and clerking firms as in many cases, the tax filer is confused with all the complexities it entails for everyone. Although a tax form has been simplified, around 40% to 50% of all tax filings have been completed by the tax preparer, of which on that point are four types, namely certified public accountants (CPAs), lawyers, an enrolled agent (someone who passed special examinations given by the natural Revenue gain precisely for this purpose and has thereby gained IRS accreditation) and unenrolled tax preparer. Discussion My decision as jakes (owner of the private accounting practice) is to accept Sue (client) because I think I can help her give away with her problems. First and foremost, the most logical step is to reconstruct her financial transactions as best as possible by taking calculated estimates of her income and expenses. This will help me prepare her audited financial statements (balance sheet and income statement) and most likely, I will issue a qualified opinion on these statements. This will sue as guide and warning to whoever uses these financial statements to arrive at their own judgment as to the applicability and suitability of the statements for their own use, like a bank. Because Sue operates her small parentage as a wiz proprietorship (presumably as based on case facts given, as she has only five full-time employees), thus she pays trade taxes in the same form as her personal income tax. It means that both she and the business itself are not taxed separately as they are considered as one and the same entities. The Internal Revenue Service or IRS calls this pass-through taxation as all profits pass through her sole proprietorship business before it reaches her as personal income. A needed document is the profit and loss statement of her business (Schedule C of the IRS forms) together with the IRS Form 1040. Moreover, she also needs to pay her own self-employment taxes like the Social warranter and Medicare systems. It is usually double the rate of what ordinary employees pay in terms of salary deductions because a sole proprietor has no employer counterpart for the contributions and so she must pay the entire amount due, which must be reported under Schedule SE (self-employed) of the IRS. Present self-employment tax rate is now 15.3% (adjusted since last February 2012 from 13.3%) for the head start $110,100 in reported income and then 2.9% tax rate for any amount in excess thereof. The turning point of improvement that Sue gave may not be of much help as some of her expenses and receipts for income were questionable, so the best approach is to just use the standard deductions which are fixed dollar amounts to some items. The IRS allows a business to deduct certain items and ordinary business expenses to lessen the tax due, to include operating(a) expenses, advertising c osts, travel and gasoline expenses, business-related meals and entertainment for business guests (IRS, 2012, p. 1) in order for an expense to qualify as a deductible, it must be necessary and also ordinary that is indispensable or helpful in pursuit of carrying out the trade or a type of business not included are cost of goods sold, capital expenses (such as equipment) and personal expenses.