What is your opinion about incorporating the business going

Reference no: EM133354078

Question: Thomas and his wife Diana have operated their children's daycare for the last three years. They also own the daycare facility, a building, and the adjacent land on 1322 Glades Road. They have limited working capital but do not foresee the need to make additional capital improvements soon. Their total business assets are about $250,000 with a $120,000 mortgage on the building as their only liability. In recent years they have not kept exact records, but have been able to withdraw any unneeded assets at the end of the year, which totaled approximately $50,000 in cash in 2022.

In 2022 they reported a net income of $85,000. In addition, Thomas has used his personal car for business travel and has charged the business mileage at the appropriate mileage when he has traveled to Miami for continuing education credits, and Diana has traveled to New York once each year for a trip with girlfriends and to attend a conference on childhood development. Although Thomas and Diana have never been sued, they have started thinking about possible legal liability in recent months.

As a good friend of Thomas and Diana and a CPA, what is your opinion about incorporating the business going forward? List at least two reasons for or against incorporating, and any change the S-corp status would have on their taxable income from the company.

Reference no: EM133354078

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