Computing the property disposition capital gain and taxation of gross income

In this short paper, you will compute the property disposition capital gain and taxation of gross income for the client described.

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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Guidelines for Submission: Your paper must be submitted as a 2–4-page Microsoft Word document with double spacing, 12-point Times New Roman font, one inch margins, and at least three sources cited in APA format.

Prepare a memorandum to the client, recommending a type of business entity, including an appendix of supporting IRS tax schedules and forms.

Details:

As an associate working in a privately held enterprise or working with privately held clients, it is imperative to be able to advise clients on the tax implications of their financial investments. The ability to model the tax consequences of transactions and do cost benefit analysis is crucial.

You will model the role of an associate working in a private consulting firm. You will demonstrate your ability to advise clients on whether they should operate as a sole proprietor, a partnership, an S corporation, or a C corporation. Additionally, using your tax research skills and understanding of federal income taxation, you will have the opportunity to evaluate tax consequences from sales and distributions for their compliance with the Internal Revenue Code and Treasury regulations.

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.
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:

Memorandum
1. 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.

Conclusion:
2. Describe the after tax effects on the client’s cash flow based on the sale of the land that is needed to provide the funds necessary to start the business. Consider including capital gains tax rules.

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

You must compute the property disposition capital gain and taxation of gross income. In completing this assignment, consider the tax effect of salary dividends or cash withdrawal in accordance with Internal Revenue Code and Treasury regulations.

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