Please prepare a client letter including your full calculation in the analysis for this assignment.

Dear Team,

I just got off the phone with our client, Mia Way. She has asked us to perform some calculations for her and her new business. She would like us to determine if, based on the information she has provided us, using the cash method of accounting for her first year of operation is advantageous, and to please quantify the value of using the cash method for the first year, if there is value to using it. When we make this calculation, please use a 5% discount rate to compute the net present value.

Facts:

Mia started Mia Way PC in February 2022. It has billed clients $3,500,000 in services and incurred $800,000 in operating expenses at the end of the first calendar year (December 31). Also by the end of the calendar year, her company has collected $2,900,000 of its billings and paid $670,000 of its $800,000 of expenses. Mia anticipates she will collect the remaining outstanding bills and pay her remaining expenses by March 2023. She has adopted a calendar year for federal tax purposes. As I stated earlier, MiaWay may use either the cash method or accrual method of accounting for the first tax return. And we need to determine if using cash method is advantageous and if so, by how much.

I am not available to go over this with you this week, as I am out of town, but please upload to me by 11:59 PM Sunday night. Please put this in client letter format addressed to Mia Way, and conclude whether the cash basis of accounting is advantageous and by how much and include the calculation you used to arrive at your conclusion, please.

Thank you, team, in advance for your work on this task for Mia.

Sincerely,

Tax Manager

Here is an example of a client letter, please follow a similar format. Thank you!

Client Letter

Hoffman, Raabe, Smith, and Maloney, CPAs

5191 Natorp Boulevard

Mason, OH 45040

February 26, 2013

John Merinoff

974 State St.

La Crosse, WI 53786

Dear John:

This letter provides you with our firms opinion regarding the tax consequences of the repayment of the excess compensation as determined by the Internal Revenue Service. More specifically, does the repayment of compensation entitle Kenny and yourself a deduction for the repayment of the excess compensation?

In our research, we found that Kenny and you are entitled to claim either a deduction or a credit for the repayment of the excess compensation in 2012. We found a case that had circumstances that were almost identical to your situation. In that case the repayment was deductible as a business expense. The IRS has also taken a similar position. There also is the possibility that the repayment of the compensation could result as a credit in lieu of a deduction.

The amount of the credit allowed in the year of repayment (2012) would be equal to the tax that was paid on the recharacterized income in 2010. If Kenny or your tax rate in 2010 was higher than it is in 2012, the credit would yield more tax savings than a deduction. The credit approach might be especially attractive to Kenny because he is now retired and presumably facing a much lower tax rate in 2012. To qualify for the credit, the amount of deduction available on repayment must exceed $3,000 and the taxpayer must show that (1) he or she had an unrestricted right to the amount in question in the year of receipt and (2) it was later established that the taxpayer did not have that unrestricted right.

We are happy to go over both situations with you to see what option would result in the greatest tax savings to you and Kenny in 2012. We look forward to hearing from you about this.

If you have any additional questions regarding this matter, please do not hesitate to call me.

Sincerely yours,

Jon S. Davis, CPA

Partner