Qn1
My advice to William job is that there are tax implications for selling the shares at a profit. In the event that the stocks are sold at a profit then William Jobs will incur capital gain tax. In This case the market value of the inheritance of $ 500,000 has a current market value of $550,000 today. The capital gain on the shares is $ 50,000. However, the rate applicable is based on the length of time the shares are held. The sole reason is that it prevents the effect of fluctuation in the market.
The taxation of the stock is based on two parameters which determine the amount of tax to be paid. The first parameter of taxing shares is the non-qualified stock option (NQSOs). If William Jobs intends to exercise this option then the ordinary tax income is the difference between the market prices of the stock and the exercise price. On the other hand, if William Jobs intends to delays the sales for another year. The capital tax rate will continue to lower on any further delay from the date of acquisition.
The second option that William can explore is Incentive stock option (ISO). The ISO is taxed as capital gain as opposed to ordinary income. In this case of ISO the shares will be treated as long-term capital gain after two years since the date of issue. In the event that the shares are sold under a year from the date of issue then they will attract a higher short-term capital gain tax rate. ISO triggers Alternative Minimum Taxes (AMTs) when the capital gain has a positive adjustment to the income from the stock. In the event that William Jobs chooses to exercise this option then the tax will be either of the larger between his regular tax bill or the capital gain tax. The merits of this option is that if the shares are held for a long period then a portion of the income will be considered earned income. Any addition gain will be treated as capital gain and, therefore, attract tax.
Recommendation
The best alternative that William Jobs can explore based on the inheritance is the NQSO option. The shares will automatically attract a lower capital gain tax rate since they were held for a long period.
The best line test is a capital gain tax which is enforces whenever there is a gain on the disposal of residential land within two years of acquisition. The rule is applicable subject to tax on profit minus the usual tax deduction whenever property is acquired and sold within 2 years of acquisition. The time period begins when the transfer from the seller to the buyer is registered with Lands authority. The period ends when the person enters into a sale agreement to dispose the property.
William Jobs will not be affect by the best line test because he intends to hold the property for longer periods. The rule is applicable to persons who intend to dispose their residential land within two years of acquisition. The rule will, therefore, be null and void to the extent that one Mr. William Jobs intends to invest in real estate for longer periods. Mr. William Jobs pass the best line test. The future value of the property appreciation is given as compared to the speculative nature of shares. The capital gain tax on shares would also tie the assets of the company. The net effect is that more return derived from real property than in shares.
The recommendation of swapping shares with the rental property is a brilliant one. The best part about the option is that William is able to evade the capital gain tax on the sale of shares. On the other hand, we base our assumption that the property was held for a longer period of more than two years. Hence, the best line rule which came into effect on the 1st October 2015 will not be applicable William Job will be able to avoid the double taxation on the shares and rental property.
Qn 2
The phrase Tax avoidance entails employment of the legal means to reduce current and future tax liabilities. The legal means usually involves the deduction of certain expenses from the income statements. When the deduction are achieved the net income reduce hence the corporation tax chargeable also reduces significantly. While on the other hand, Tax Evasion entails doing illicit things to avoid paying taxes. Companies and individuals who employ tax evasion through the various tax safe heavens. The use of the conniving method results to massive tax gaps in the economy. Tax evasion is illegal and punishable hence is not advisable for legitimate businesses.
In the case of D.H.N. Food products Ltd. v. Tower Hamlets London Borough Council the agency principal applied in the protection of veil of incorporation. A company can employ an agent to further the interest of the company. The company is bound to indemnify the agent especially those who have lien of the assets of the company. The House of Lords confirmed that a company can act as an agent for its shareholders.
Companies act as agent for their shareholders when authorized by the shareholders to perform such duties. The agency purpose of the company can be achieved for financial gain both for the company and the individual shareholders. Shareholders will eventually benefit from the companies exploits. The veil of incorporation protects lots of the financial information about the organization. The separate identity of the shareholders contrasted to that ofthe firm provide for the loop holes in law.
The use of the company structure to avoid taxes can be applicable in Julie case. The idea in this case is that the income is earned by individual directors. The incomes are not subject to be taxed because the company would be subjected to corporate taxation. It will shield the optical income from the taxation on its income. The assumption made is that the company is a legal entity before the law. The company has capacity to make its own income and is distinct from its directors. On the other hand, directors can draw salary from the company which is not subjected to taxation. Julie can utilize that opportunity to avoid the taxation because the law cannot lift the veil of incorporation to study the companies operation.Julie will be protected by the law itself facilitating the tax avoidance process.
The agency principle creates a loophole of the law as far as taxation is concerned. Julie can take advantage of the protection of the veil of incorporation to evade the tax burden. Director’s remuneration amount to expenses that are deducted from the taxable income. The protection of the optical income is necessary for the growth of the business. Furthermore, the use of the tactics that have been mentioned above acton protect both the stakeholders interest and the interest of business.
Qn 3
Insurance settlement are not taxable because they are a meant are considered indemnification. The insurance settlement is not an income because they compensate for losses that a person incurs. Insurance settlement in this case is not taxable because it was meant to indemnify for the loss of the laptop. The receipt of the $ 1,200 should not be treated as an income and hence it cannot be subjected to taxation.
The amount of depreciation that William Job can claim is $ 7,400.63 for the current year. The depreciation value will be deducted from the income to get the income tax figure to impose the tax rate. Therefore, the total amount of depreciation that He can claim for the year is $ 7,400.63.
