Question

Bill and Kerry plan to open a limo service for the Miami Dade area after they buy and renovate two 15 passenger vans purchased recently at an auto auction in Delray Beach, Fl. Bill is a licensed commercial driver, but is not knowledgable on business formations, and Kerry has experience as a bookkeeper. Kerry plans to keep her current job with Sunshine foods, inc. but will moonlight with the company when necessary. Their initial projections are that they will lose $35,000 in 2017. They have also paid cash for the two commercial vans ($10,000 each) and had to pay $1,000 to the port of Miami to receive a commercial permit valid through 7/31/2020. To fund operations so far Bill has taken out a second mortgage on his personal residence for $70,000 and deposited the full amount into the company's bank account. Kerry has not contributed any money to the company, but has offered to work on the company's accounting books for 'free' until a point in time when the company has enough money to pay her.

a. List advantages for operating this business as a partnership instead of a corporation and state your recommendation as their CPA for business entity formation including % allocation if your advice is a partnership (please also state whether you believe they should set up as a general or limited partnership in your opinion)

b. As the CPA for Kerry and Bill, what will Bill and Kerry recognize for taxes, assuming they accept your recommendation for entity formation as stated in part A in 2017?

Answer 1

Answer

A.

Advantages for operating this business as a partnership instead of a corporation:

1.It is very easy and easy to start a partnership business rather than a corporation, for which cumbersome legal requirements are necessary. Preparations for the memorandum and articles etc.

2.Partners do not pay taxes on business business, but partners will pay taxes on their salary, dividends, etc. Where tax will be made by the corporation in the corporation.

3.In partnership, all the general partners decide whether to conduct business, where in the corporation, shareholders should conduct regulation meetings to choose their management and policies.

4.The cost of starting a partnership business is much less compared to corpration whcih The government needs to pay hevvy fee to register its business.

They share the benefits and losses equally as they have no formal agreement to share profits and losses. If any amount is not invested then he is entitled to share equally.

B.

No gain or loss is recognized, when the partner contributes to any asset to achieve partnership, their business also does not need to pay tax on the profit, but pay taxes on income received from partner partnership . In the above case, Balle has contributed $ 70,000 for which he has no need to pay taxes.