Question

Problem 4-51 (LO. 6, 7)

Julio sold his corporation to a competitor, Exeter LLC, for $100,000,000. Julio incorporated his business 17 years ago by investing $500,000 plus his proprietary know-how. There have been no other corporate shareholders.

Compute Julio's after-tax cash flow from the sale, assuming he is in the 35% tax bracket (20% long-term capital gain rate) and has no other property sales during the year. Assume the 3.8 percent Net Investment Income Tax applies.

Julio's after-tax cash flow from the sale is $.

Answer 1

ANSWER

An enterprise is possessed by the investors. At the point when a partnership is sold, the shares of the enterprise are esteemed. ​The difference is viewed as a capital gain or loss, reportable on the shareholder's very own government form on Schedule D of personal tax return.

The partnership share of an accomplice is viewed as a capital asset and results in a capital increase (or misfortune) when sold. The share of an investor are capital gain or loss when sold, either as a major aspect of a business sale or when an investor wishes to leave the firm by taking back money he invested.

Under current law, long term capital gain of people are saddled at a fundamentally lower rate than conventional pay. Indeed, on the off chance that you've held the benefit for longer than a year, the greatest duty on long haul capital additions is 15 percent for qualifying citizens. (Citizens in the 10-and 15-percent charge sections pay zero percent.)

Here Julio goes under 35% expense Bracket thusly charge rate will be 15% on capital gain

• Capital Gain = $ 100,000,000 - $ 500,000

= $ 95,000,000

• Assessment on Capital addition

= $ 95,000,000 * 15 %

= $ 14,250,000

• After assessment income from deals

= $ 95,000,000 - $ 14,250,000

= $ 80,750,000