Question

Last year, he reported interest income of $20,000 and dividend income of $6,000. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for $450,000. The stocks and bonds have a tax basis of $1,200,000 and they are currently worth $5,000,000. All of the investments have been owned for more than a year. In addition to his investments, Bob paid $140,000 for his home in 1972 and it is now worth $600,000. The used car business is currently valued at $53,000,000 including the land and building, which are worth $41,000,000. Bob’s tax basis in the land and building is $2,000,000 and $400,000, respectively. The inventory is worth $12,000,000, with a cost basis of $5,000,000; the remaining assets, which include office furniture and equipment, make up the remainder of the business’s total value. The office furniture and equipment are fully depreciated.

Prepare Bob’s Form 1040 with the appropriate tax schedules and Mandy’s Form 1040 (based on the salary he wanted to pay her, $70,000 per year). Assume that you are filing the tax returns using sole proprietorship for the business entity and treating Mandy as an employee, regardless of your initial recommendation for this client.

Prepare the appropriate forms in the event that the client decides to convert the business to a partnership, an S corporation, or a C corporation based on your recommendation. Also, include the tax effect, if any, of the money that the client and his daughter are taking from the business for their personal expenses. Include the owners’ personal 1040 forms as well.

Justify your recommendation using schedules and tax forms you completed by explaining how the forms and schedules result in the best economic solution for the client consistent with IRS code and regulations.

Answer 1

ANSWER:

Authoritative Analysis and Design Plan: S Corporations

To:

From:

Subject: Tax Benefits and Liability for S Corporations

Date:

In light of the sort and nature of the matter of offering administrations, it is recommendable for Bob to frame S partnership. S organization comprises of the different engaging tax cuts and still suppliers the entrepreneur with the obligation insurance of a company. On account of a S enterprise, the salary and misfortunes acquired are exchanged through to investors and gave an account of their individual assessment forms (Wahab and Holland, 2012). Consequently, Bob would not be required to shoulder the whole taxation rate and misfortunes experienced in the business. Be that as it may, the business is anticipating a 10% development in the general returns.

Sway is encouraged to utilize S partnership, as his type of business does not have stock, which makes it suitable and less difficult to utilize the money technique for bookkeeping, which is less complex, contrasted with the accumulation bookkeeping strategy. Under the money bookkeeping strategy, wage is assessable after it has been gotten and costs deductible paid. A portion of the ongoing duty law and direction changes prompt the production of the Small Business Job Protection Act of 1996, which has made the S partnership appealing to the entrepreneurs and business people (Schenk, 2014). Beforehand, S companies were restricted to 35 investors, while the ongoing assessment law of 1996 would be expanded to 75 investors. The development of the investors takes into consideration more financial specialists, which pull in extra capital.

Notwithstanding the tax breaks and restricted risk insurance, S partnerships have a few impediments. For example, they are liable to various necessities, which must be followed and in this way it suggests higher legitimate and assessment benefit costs. They are relied upon to document the articles of consolidation and hold standard investors gatherings. Notwithstanding every one of, the expenses of lawful and bookkeeping administrations for the S partnership levels with the expenses of standard organization (Graham, Raedy and Shackelford, 2012). Also, the expenses of setting up the profits are lower than that of the C company status. Since, the S partnerships are liable to once a year assess documenting necessities. Then again, the C Corporation is liable to quarterly documenting necessities. Since the S organizations records their expenses once every year, the cost of setting up the profits is low yearly. The organization workers and investors appreciate full restricted obligation insurance. Their own advantages can't be utilized to pay for the misfortunes of the companies.

The assessment and constrained risk impacts of S companies incorporates that the enterprises passes all corporate pay, reasonings and misfortunes to their investors for government tax assessment. In this way, the investors of the S enterprises would report the course through of salary and misfortunes to their own expense forms. In S organizations, charges are evaluated on the corporate salary. S organizations are at risk for the specific additions and energy wage inside the element level. Another real advantage of choosing S partnership status is that the organization dispenses with the hindrance of twofold tax assessment identified with corporate wage and profits from investors as on account of the C company impose status (Schenk, 2014). After the choice of the S enterprise status, Bob will be required to record different duty timetables and structures including IRS shape 2553 and frame 1120S U.S. pay expense form for a S enterprise