Explain tax effect based on providing per year for client

Assignment Help Accounting Basics
Reference no: EM132788972

You are working as an accountant at a mid-size CPA firm. One of your clients is Bob Jones. Bob's personal information is as follows: DOB: October 10, 1952 SSN: 444-00-4444 Marital Status: Single Home Address: 5100 Lakeshore Drive, Pensacola, FL 32502 Bob has a very successful used car business located at 210 Ocean View Drive in Pensacola, Florida. Last year, you filed a Schedule C for Bob that had $1,200,000 in taxable income. The business will have an income growth rate of 10% per year over the next several years. Bob's personal wealth, including investments in land, stocks, and bonds, is about $14,000,000.

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 $10,000,000; 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. Bob wants your professional advice regarding whether he should continue to operate as a sole proprietor or convert the business to a partnership, an S corporation, or a C corporation. Based on one of the business entities selected, Bob wants to include Mandy-his daughter-in the business as an owner and manager with a possibility of 40% interest. One of his concerns is what would happen to his business after he passes away.

Mandy's personal tax information is as follows:

Mandy Jones DOB:

June 30, 1990 SSN: 999-99-9999

Marital Status: Single Home Address: 5990 Langley Road, Pensacola, FL 35203 You will need to describe the tax and limited liability effects on a chosen business entity should Bob decide to reduce the amount of tax paid per year, as well as the protection of personal assets should there be a possible claim against the company's assets. Prepare a memorandum to the client, recommending a type of business entity, including an appendix of supporting IRS tax schedules and forms.

Specifically, the following critical elements must be addressed:

Question 1: Explain the tax effect based on providing $180,000 per year for the client's salary and $70,000 per year for his daughter's salary if they withdraw cash from the business or pay dividends as appropriate.

Question 2: Justify the percentage of ownership the client's daughter should have in the business based on the type of business entity recommended. Consider the tax law in reference to the recommendation and how the decision will affect the daughter's tax return.

 

Reference no: EM132788972

Questions Cloud

Assess your organizations overall readiness for change : Using Table 4.1 in your Organizational Change: An Action-Oriented Toolkit text, you will assess your organization's overall readiness for change.
Write independent registered public accounting firm : Write Independent Registered Public Accounting Firm's Report on Internal Control Over Financial Reporting amd Management's Report on Internal Control
What is the material efficiency variance : During the period, the company acquired 1,000 units of direct material at a cost of P4,500. What is the material efficiency variance
Calculate the labor variances : During 2017, 19,000 cans were produced; 15,000 gallons of material were purchased at a cost of $87,750; Calculate the labor variances
Explain tax effect based on providing per year for client : Explain the tax effect based on providing $180,000 per year for the client's salary and $70,000 per year for his daughter's salary if they withdraw cash
What did herodotus admire about persian civilization : 1. What aspects of Persian worship does Herodotus find strange and different from that of the Greeks?
Calculate the budgeted cash collections for april : Projected sales for March are 3,000 gizmos at $13 each. Projected sales for April are 4,000 gizmos at $14 each. Calculate budgeted cash collections for April
Identify a company that is effective at managing diversity : Identify a company that is effective at managing diversity(other than Jet Blue Airlines)
Service positioning versus product process : Compare and contrast the service positioning matrix and the product process matrix in terms of their differences and similarities.

Reviews

Write a Review

Accounting Basics Questions & Answers

  How much control does fed have over this longer real rate

Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest.   How much control does the Fed have over this longer real rate?

  Coures:- fundamental accounting principles

Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.

  Accounting problems

Accounting problems,  Draw a detailed timeline incorporating the dividends, calculate    the exact Payback Period  b)   the discounted Payback Period. the IRR,  the NPV, the Profitability Index.

  Write a report on internal controls

Write a report on Internal Controls

  Prepare the bank reconciliation for company

Prepare the bank reconciliation for company.

  Cost-benefit analysis

Create a cost-benefit analysis to evaluate the project

  Theory of interest

Theory of Interest: NPV, IRR, Nominal and Real, Amortization, Sinking Fund, TWRR, DWRR

  Liquidity and profitability

Distinguish between liquidity and profitability.

  What is the expected risk premium on the portfolio

Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.

  Simple interest and compound interest

Simple Interest, Compound interest, discount rate, force of interest, AV, PV

  Capm and venture capital

CAPM and Venture Capital

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd