Question

In: Accounting

Tegan and James are planning to start a new business together. They are expecting annual taxable...

Tegan and James are planning to start a new business together. They are expecting annual taxable income of $250,000 from their business, but they are concerned about the expected tax burden. They know that the corporate tax rate is 30% and individual tax is payable as per the following table:

Taxable income Tax on this income 0 - $18,200 Nil $18,201 - $37,000 19c for each $1 over $18,200 $37,001 - $80,000 $3,572 plus 32.5c for each $1 over $37,000 $80,001 - $180,000 $17,547 plus 37c for each $1 over $80,000 $180,001 and over $54,547 plus 45c for each $1 over $180,000

They are seeking your advice on the tax implications of the two following forms of business structures and have requested you to calculate the tax payable under each of them: (i) Partnership - Tegan 30% and James 70%. (ii) Corporation. (iii) Which form of business would you recommend to Tegan and James, why?

Solutions

Expert Solution



Related Solutions

James, Jill and John want to start a new business and want to be able to...
James, Jill and John want to start a new business and want to be able to raise about $1 million for the business from their family and friends. They are considering forming either a corporation or a limited liability company. Advise James, Jill and John on what is necessary to form and maintain (including administration, taxes, management, etc.) a corporation versus forming and maintaining a limited liability company. Your advice should include comments on the advantages and disadvantages of corporations...
James and Mary are married and file a joint tax return. Together, their taxable income is...
James and Mary are married and file a joint tax return. Together, their taxable income is $80,000. How much will they pay in taxes? (Round answers to 0 decimal place, e.g. 5275.)
Imagine you have an idea for a new business and you’re excited to start planning the...
Imagine you have an idea for a new business and you’re excited to start planning the next steps. Respond to the following in a minimum of 175 words: What key elements will you include in your Mission and Vision statements? Why are these elements relevant to you and to your business? How will your mission and vision statements guide your business development and ultimately how you service your customers?
Ben, Jason, and Kelly are planning on forming a business together.   The business will begin as...
Ben, Jason, and Kelly are planning on forming a business together.   The business will begin as of 1/1/19 (assets transferred as of this day). They plan on transferring the following assets to the business: Asset               Original Cost     FMV      Date of Acquisition     Liabilities Ben:                 Computer        $15,000              $11,000           1/1/16                      $0                         Cash                14,000 Jason:             Car                  $30,000              $25,000           1/1/17                      $20,000                         Cash                20,000 Kelly:              Office Furn.    $40,000              $25,000           1/1/18                      $0 (Note – You have to...
Ben, Jason, and Kelly are planning on forming a business together.   The business will begin as...
Ben, Jason, and Kelly are planning on forming a business together.   The business will begin as of 1/1/19 (assets transferred as of this day). They plan on transferring the following assets to the business: Asset               Original Cost     FMV      Date of Acquisition     Liabilities Ben:                 Computer        $15,000              $11,000           1/1/16                      $0                         Cash                14,000 Jason:             Car                  $30,000              $25,000           1/1/17                      $20,000                         Cash                20,000 Kelly:              Office Furn.    $40,000              $25,000           1/1/18                      $0 (Note – You have to...
Assume you are planning to start a new business that will sell innovative consumer products via...
Assume you are planning to start a new business that will sell innovative consumer products via an online store. You will be pitching your idea to potential investors with the goal of securing funding. Your investors are very savvy and want to review a well thought out financial forecast. Using the examples provided in Chapter 6, construct a hypothetical 5 year Cash Flow estimate including depreciation and tax-related amounts. Be sure to show your detailed calculations and document at least...
Shema is planning to start a new business selling frozen foods. However, she was approached by...
Shema is planning to start a new business selling frozen foods. However, she was approached by her old friend who intends to sell the profitable frozen foods business to her. Her friend’s business sells a variety of frozen foods and located in Kuala Lumpur with an average monthly sales of RM300,000. Now, Shema has to decide whether she should go ahead with her own plan to create her own business or to buy the existing business from her old friend....
Shema is planning to start a new business selling frozen foods. However, she was approached by...
Shema is planning to start a new business selling frozen foods. However, she was approached by her old friend who intends to sell the profitable frozen foods business to her. Her friend’s business sells a variety of frozen foods and located in Kuala Lumpur with an average monthly sales of RM300,000. Now, Shema has to decide whether she should go ahead with her own plan to create her own business or to buy the existing business from her old friend....
Private cars is a medium size car manufacturer planning to start a new business of sports...
Private cars is a medium size car manufacturer planning to start a new business of sports cars. As part of Initial investment, the firm needs to purchase manufacturing equipment worth $ 10 million today and also incur an additional R&D cost of $ 2 million. The equipment will be depreciated in equal amounts over the next 10 years. In the first year, the firm expects to sell 100 cars at $ 25,000 each and the manufacturing cost is estimated to...
Phu Lighters is doing its annual budget. It's expecting to start next year with the following...
Phu Lighters is doing its annual budget. It's expecting to start next year with the following mix of assets:      Current assets $2,100,000   Capital assets          3,600,000       Total assets $5,700,000       The asset mix is expected to stay at these levels for the whole year, with the exception of 3 months where current assets are expected to drop to $480,000. Its operating profit (EBIT) for the year is expected to be $620,000. Its tax rate is 40 percent. Shares are...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT