Reference no: EM13370431

Stacey has a small salon that she has run for a last few years as a sole proprietorship. The proprietorship uses cash method of accounting and the calendar year as its tax year. Stacey requires additional capital for expansion and knows two people who might be interested in investing. One would like to practice hairdressing in salon. The other would only invest.

Stacey needs to know the tax consequences of incorporating the business. Her business assets include a building, equipment, accounts receivable and cash. Liabilities add a mortgage on the building and a few accounts payable, which are deductible when paid.

Prepare a memo to Stacey explaining the tax consequences of the incorporation. As part of your memo examine the possibility of having the corporation issue preferred and common stock and debt for the shareholders' property and money.