You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and


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.

In this short paper, you will compute the property disposition capital gain and taxation of gross income for the client described in the final project. Based on your computations and relevant sections of the Internal Revenue Code, explain the tax consequences on the possible sale or exchange of the land, including the impact on cash flow and salary or cash distributions.

Specifically, the following critical elements must be addressed:

A. Calculate the property disposition capital gains and taxation of gross income.

B. Identify the tax consequences on the sale or exchange of the land consistent with capital gain rules. Consider the selling expense, broker's fees, closing costs, appraisals, and surveys and the correct schedule form to complete.

C. Describe the after tax effects on the client's cash flow based on the sale of the land. Consider including capital gains tax rules.

D. Explain whether or not the client and his child should take a salary or cash distribution according to tax purposes and the Internal Revenue Code and Treasury regulations. Consider the type of business and the tax effect whether it is salary, dividends, or cash withdrawal.

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A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...

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Related Book For  answer-question

Federal Taxation 2016 Comprehensive

ISBN: 9780134104379

29th Edition

Authors: Thomas R. Pope, Timothy J. Rupert, Kenneth E. Anderson

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Question Posted: August 11, 2017 08:32:06