Reference no: EM131585813

Assignemnt

The owners of The Car Wash have asked you to prepare their tax return. Their financial statements are audited by a local certified public accounting (CPA) firm, and they have provided them to you as a reference. A copy of the Income Statement and Balance Sheet have been reproduced below. In your discussion, you obtained the following pieces of additional information to prepare the tax return:

• Name of business owner: Tim Smith, SSN:123-45-6789
• Tim Smith's address: 8765 Warner Street, Huntington Beach, CA 92605
• Name of business owner: Jack Dillard, SSN: 987-65-4321
• Jack Dillard's address: 4321 Courtyard Place, Huntington Beach, CA 92605
• Business name: The Car Wash
• Business address: 1046 Broadway Street, Huntington Beach, CA 92605
• Business description: Self-Service Car Wash
• Employer identification number: 99-8877665
• Date the business started: January 1, 2008
• Business will file its return using the cash basis of accounting

Income Statement December 31, 20XX
Revenue:
Service revenue	$254,603
Expenses:
Advertising	2,520
Depreciation	31,250
Insurance	7,260
Interest expense	36,204
Licenses and fees	7,260
Miscellaneous	4,074
Office expense	8,911
Salaries and wages	67,460
Payroll taxes	9,444
Employee benefits	1,349
Professional fees	1,210
Repairs and maintenance	20,674
Telephone	900
Travel	1,500
Utilities	27,752
Net income before taxes	$26,835

Balance Sheet

	January 1, 20XX	December 31, 20XX
Assets
Cash	$28,638	$64,979
Buildings and other depreciable assets	555,000	555,000
Accumulated depreciation	(62,500)	(93,750)
Total assets	521,138	526,229
Liabilities and equity
Loans	183,757	167,962
Mortgage	233,229	227,280
Equity investment	160,000	160,000
Retained earnings	(55,848)	(29,013)
Total liabilities and equity	$521,138	$526,229

Part I

• Adjust and make any changed to your IP4 tax returns based on faculty feedback. Include your finished and fully edited version for Part 1.

Part II

Deliverable Length: 800-1,100 words

Your client has been informed that an S corporation is a popular business form and wants to know more about it. Please write a professional memo to your client responding to his inquiry. Be sure to at least discuss the following items:

• What is an S corporation?
• When is it advisable to be taxed as an S corporation?
• How does an organization become an S corporation?
• If The Car Wash is a corporation, can they be taxed as an S corporation?

o Why or why not?
o What criteria must be met?

• If The Car Wash is a LLC, can it be taxed as an S corporation?

o If so, what does it need to do to elect S corporation status?

• How would The Car Wash report and pay tax if it is an S corporation?