ACC 330 Final Project Three Formal Letter to Client - Dominic PDF

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Final Project 3...

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Maloney, Hoffman, Raabe, & Young, CPAs 5191 Natorp Boulevard Mason, OH 45040

March 11, 2019

Freida and Daniel Butler 625 Oak Street Corbin, KY 40701

Dear Freida and Daniel Butler:

I was more than happy to help the both of you prepare your tax return. Thank you for giving me the opportunity to assist the both of you once more and it will be my pleasure providing you answers to your questions. Please keep in mind that anything that changes throughout the 2019 tax year will affect the answers I am providing to you. To answer your question about reducing your tax liability, to reduce your tax liability, first deductions reduce your taxable income leaving your with a lower tax liability and then tax credits applied to your tax liability reduce it even further. Some deductions you could claim to reduce your tax liability in 2019 that you did not use are your 2018 tax return are your dependents student loan interest and tuition expenses, qualifying travel and transportation expenses related to your jobs, and contributions to retirement plans. Some credits you did not claim in 2018 tax return, but could claim in 2019 are the American Opportunity credit and

Lifetime Learning credit as long as you do not claim education expenses deductions, an energy credit for any qualifying energy efficient equipment in your home, and a retirement plan contribution credit. Both you and Daniel do qualify for retirement plans. The retirement plans available to the both of you are a 401(k)plan and Individual Retirement Accounts (IRAs). A 401(k) may already be available through one or both of your employers. Contributing a percentage of your income to a 401(k) reduces your taxable income, which reduces your tax liability and those contributions will only be taxable in the year of distribution. While you and Daniel can contribute to an IRA, since your predicted 2019 adjusted gross income (AGI) is over $123,000, no deduction will be available. For someone to qualify as a dependent child they must meet relationship, residence, age, and support tests and to qualify as a dependent relative they must meet relationship, gross income, and support tests. The reason Ben did not qualify as your dependent was, he is over the age of 24, which disqualifies him as qualifying child and because his gross income is over $4,200, which disqualifies him as a qualifying relative. Your children Gina and Willie passed all the tests, which is why they qualified as dependents. Listing Ben as a dependent and exaggerating charitable contributions is unethical and can be punishable by penalties to myself, you, and Daniel. Some penalties you and Daniel could face for these actions are accuracy-related penalties, which are negligence, understatement of tax liability, and overvaluation penalty. These penalties amount to 20% of the portion of the tax underpayment, which can be quite high depending on the amount of underpayment. As for myself, the penalties I could face for these actions are willful and reckless conduct penalty, $1,000 for understatement of tax liability, and $530 penalty for falsifying the dependent credit. If

you and Daniel still want to pursue those actions, I will have to break off engagements with the both of you for the sake of my reputation and the reputation of the firm. The both of you can claim higher deductions if no tax laws are violated and the information you provide is accurate and reliable. I hope I have answered both of your questions in full and if either of you have any further questions please feel free to contact me.

Sincerely,

Dominic Caputo Tax Consultant, CPA...