Tax Benefits and Liability for S Corporations, accounting homework help

Scenario:

You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and single, has recently retired from IBM. He has $690,000 available in his 401(k) fund and he is thinking of using that money to open a used car business that will be located at 210 Ocean View Drive in Pensacola, Florida. Bob has estimated that the business might make $300,000 in taxable income.

Bob’s personal wealth including investments in land, stocks, and bonds is about $14,000,000. He reported an interest income of $20,000 and dividend income of $6,000 last year. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for $450,000. Bob has hired your firm for professional advice regarding whether he should operate as a sole proprietor, a partnership, an S corporation, or a C corporation. He is also considering transferring a possible 40% interest in his new business to his daughter Mandy, age 23 and single.

Guidelines:

In this short paper, use the S Corporation type of business entity for the client described in this paper. In explaining your recommendation, discuss liability issues, tax effects, and the economic impact on the client’s personal returns.

Justify your recommendation regarding whether the client’s daughter should have an ownership interest in the new company with details related to the transaction.

Specifically, the following critical elements must be addressed:

I. Memorandum

A. Recommend a type of business entity for the client to consider based on your tax research. Consider justifying your recommendation using the code and regulations that relate to the business entity.

F. Justify whether or not the client should choose a business entity that has limited liability protection.

G. Describe the tax effect on the recommended business entity and the impact it will have on the client’s personal tax return. Consider addressing how the business entity affects the completion of the 1040 tax form.

II. Conclusion

A. Evaluate the economic impact on the client’s personal returns based on the recommended entity. Justify why the client would not choose the other business entities by informing the client of the differences.

B. Justify your recommendation regarding the client’s daughter having an ownership interest. Provide details supporting the recommendation taking into consideration the jargon and mechanics of the transaction.

Guidelines for Submission: Your paper must be submitted as a 2-3-page plus a cover page and references) and must be written in APA format with double spacing, 12-point Times New Roman font, one- inch margins, and at least three sources cited in APA format. The memorandum must include an appendix containing electronic version of the appropriate IRS tax schedule and forms

 
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