Reference no: EM133227996

a) Jackson owns and operates a construction firm (as the sole owner). Because all of his company's current projects are housing contracts, he has the option of recognizing income using either the completed contract method (recognizing all income when the project is completed) or the percentage of completion method (recognizing income in proportion to the percentage of the project completed). Jackson might postpone income recognition using the completed contract technique. Assuming Jackson is expected to be in the highest marginal tax rate of 37% for current and future years (before factoring revenue from the construction firm), which income recognition method would Jackson normally prefer? Why?

b)Assume Jackson is an accrual-basis taxpayer who also pays a land clearance service before starting large construction projects. He has the option of claiming the expenditures in the future or current year using the recurrent item exemption (which would allow him to instantly realize charges). Which option would Jackson typically choose if he is predicted to be in the highest marginal tax rate of 37% in current and future years? Why?

c)Jackson has also invested in other undeveloped parcels of property as a separate venture. He expects that the land will rise in value, allowing him to benefit from the property when it is sold. Assuming the land's value has increased, would Jackson prefer to classify these parcels as ordinary or capital assets? Why? How would your response change if the value of the land had decreased? Why?

d)Would your answers to Parts A and B alter if future marginal tax rates were likely to rise significantly as a result of recent tax law changes? Why?

e)Are a taxpayer's overall goals when reporting taxable income congruent with his or her goals when reporting financial (book) income? Why or why not?