ebook Calculator On July 24 of the current year, Sam Smith was involved in an accident with his business use automobile. Sam had purchased the car for $30,000. The automobile had a fair market value of $20,000 before the accident and $8,000 immediately after the accident. Sam has taken $20,000 of depreciation on the car. The car is insured for the fair market value of any loss. Because of Sam's history, he is afraid that if he submits a claim, his policy will be canceled. Therefore, he is considering not filing a claim. Sam believes that the tax loss deduction will help mitigate the loss of the insurance reimbursement. Sam's current marginal tax rate is 35%. a. Complete the letter to Sam that contains your advice with respect to the tax and cash-flow consequences of filing versus not filing a claim for the insurance reimbursement for the damage to his car. Young, Nellen, Raabe, Hoffman, & Maloney, CPAS 5191 Natorp Boulevard Mason, OH 45040 January 27, 2021 Mr. Sam Smith 450 Colonel's Way Warrensburg, MO 64093 Dear Mr. Smith: This letter is to inform you of the tax and cash-flow consequences of filing a claim versus not filing a claim with your insurance company for reimbursement for damages to your business-use car. Dear Mr. Smith: This letter is to inform you of the tax and cash-flow consequences of filing a claim versus not filing a claim with your insurance company for reimbursement for damages to your business-use car. If an insurance claim is filed, you will have a taxable gain of $ 700 This is determined by computing the difference between the insurance proceeds and the lesser or decrease in FMV The result will produce a net cash flow of $ 12,000 X of the adjusted basis of $ 8,000 X, which will reduce your tax If no insurance claim is filed, you will have a deductible loss liability by $ 12,000 X The net cash benefit resulting from filing an insurance reimbursement claim would be $ 3,000 X