Gary and Gretas Corporation - Research Paper Example

MEMORANDUM Relevant facts Gary and Greta, citizens in the United States and our customer, own a separate corporation of which operate out of the Grump’s home. There is payment for office space. A corporation is obliged to pay its own income taxes on profits since it is a separate legal entity from its owners. This makes the company be taxed on all proceeds that cannot be deducted as an expense.

Taxable profit will be the amount kept by the corporation to meet its expenses and dividends (Hoffman, et, al, pg23).Gary and Greta have operated a loss for the previous five years meaning that their total expenses exceed the total income hence having a loss for purposes of tax. Unless my client is a loss attributing qualifying individuals, they will not be able to pass the loss (Hoffman, et, al, pg26).Gary and Greta have adapted to the use of the losses from these rental assets to offset the rental income they have been charging their corporation for operating in their home.

My client has been carrying losses forward (Barkas, pg 41). The last three individual tax return, the grumpy have shown income from leasing office space to their corporation of $40,000, $24,000 and $22,000 losses. Losses incurred in the rental properties have been in surplus of the proceeds from the rent of the offices hence the duo has a loss carry forward of some amount, section 448 (d) (2). They did offset the lease income with the losses from the rental properties (Brownlee, pg 20) section 6013.

IssuesCorporation is an entity that is legally established under company’s laws. Qualities as a corporation for purposes of tax are based on the form of companies in most taxing jurisdiction (as defined in section 448(b) (2). Since Gary and Greta have a separate corporation, this means that tax may be imposed on the corporation as a separate entity from the two. In this scenario, both Gary and Greta are not subjected to tax on the corporation’s earnings until that point in which they be distributed.

According to the tax Act these corporations may be taxed on their incomes and properties. We have a specific range of rates on taxable income as defined in the system.The spouse needs to keep records that do relate to the cost, income, and expenses. For instance price at which the house, apartment building and the condo was purchased, depreciation accumulated and the security deposits (Brownlee, pg 20). They will also be required to keep records of expenses involved such as maintenance and repair costs, cleaning, advertising, real estate taxes and mortgage interest expenses.

Analysis These tax rates vary by jurisdiction and also are the same for income bracket. Most systems have graduated tax rate systems. This entails that corporations with lower level of income do pay lower tax rates and vice versa. An example of corporate tax rate in the united states is 15%-30% in federal and 0%-10% in state.ConclusionSince my clients are married, they are required in section 6013 to fill in their returns jointly as a couple for their corporations and hence they will pay 15% when the corporation will be making a profit.

Marital status shall be determined under section 7703.Works CitedBarkas, Loula. Corporate Tax Planning. New York: RIA, 1984. Print.Brownlee, W E. Federal Taxation in America: A Short History. Washington, D.C: Woodrow Wilson Center Press, 1996. Print.Hoffman, William H, and Robert W. Clarke. West's Federal Taxation: Corporations, Partnerships, Estates & Trusts. St. Paul: West Pub. Co, 1977. Print.Taxation, New York: United Nations, 2000 Print.