Tax 650 Final Project Guidelines And Rubric Overview

Tax 650 Final Project Guidelines And Rubricoverview The Final Project

The final project for this course is the creation of a memorandum with appendix (7–10 pages). 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. For your final project, 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. The project is divided into four milestones, which will be submitted at various points throughout the course to scaffold learning and ensure quality final submissions. These milestones will be submitted in Modules Three, Five, Seven, and Eight. The final product will be submitted in Module Nine. In this assignment, you will demonstrate your mastery of the following course outcomes:

• Recommend an appropriate business tax entity based on the analysis of a tax situation for achieving favorable economic impact on the client’s taxable income
• Utilize appropriate tax forms and schedules that compute taxable income on individual tax returns and reflect versatility of thought, resulting in the best economic solution for the individual taxpayer
• Apply accrual and cash basis accounting best practices and moral reasoning in determining when business transactions may be reported for income tax purposes
• Assess the economic impact on taxable income for the business tax entity in relation to Internal Revenue Code and Treasury regulations and the optimum desired outcomes for the client
• Evaluate the tax consequences that result from sales or distributions of property for their compliance with IRS Circular 230, Internal Revenue Code, and the American Institute for Certified Public Accountants and for advising the client

Paper For Above instruction

Bob Jones, a 60-year-old retiree with substantial wealth, plans to establish a used car business in Pensacola, Florida, utilizing his accumulated retirement savings and considering various ownership structures. His primary goal is to select the most advantageous business entity for tax and liability purposes. As part of this process, the advisor must analyze different entity options—sole proprietor, partnership, S corporation, or C corporation—evaluating their respective tax implications, compliance considerations, and impact on personal finances.

Based on the tax research, a Limited Liability Company (LLC) with S-corp election often offers a favorable balance of liability protection and tax efficiency. IRS code sections 1361 and 1362 outline the benefits of an S corporation, which can shield personal assets from business liabilities while allowing for pass-through taxation, avoiding double taxation experienced by C corporations. An LLC operating as an S corporation combines limited liability with the taxation benefits of a partnership, ensuring that income flows directly to personal tax returns, thereby reducing overall tax burden.

Accounting method choice is crucial; cash basis accounting records income when received and expenses when paid, offering simplicity and closer alignment with cash flow. Conversely, accrual accounting recognizes income when earned and expenses when incurred, providing a more accurate picture of financial health over time. For a small but growing business, cash basis often suffices, but if the business expands or secures external financing, accrual accounting might be preferred. Revenue recognition principles differ accordingly, with the sale of inventory under the installment method or upon delivery, depending on the accounting system in use.

The sale of land presents unique tax considerations. If Bob sells his land, long-term capital gains rules apply, especially given the land's significant appreciation since 1966. According to IRC Section 1221 and Schedule D, the sale's gain is calculated as the difference between the sale price and the land’s adjusted basis. Selling expenses, such as broker fees, closing costs, and survey costs, reduce the taxable gain. Proper documentation and accurate reporting are essential to comply with IRS regulations while minimizing tax liability.

Liability considerations favor forming an entity with limited liability protection, such as an LLC or corporation, to shield personal assets from business debts and legal actions. Under IRC Section 267 and applicable case law, these structures can limit future financial risks to the business entity itself, preventing personal assets like Bob’s land or investment portfolio from being liable for business obligations. This protection is especially vital as the business grows and the potential for lawsuits or unforeseen liabilities increases.

The tax implications extend to personal tax returns. The chosen entity affects how income, losses, and distributions are reported on the client’s Form 1040. Pass-through entities like S corps and LLCs report business income directly on schedule E, while C corps’ income is taxed at the corporate level, with dividends passing through to personal returns. Additionally, if Bob transfers a 40% interest to his daughter Mandy, gift tax rules (IRC Section 2503) and potential attribution rules (IRC Sections 267 and 318) must be considered to plan for tax efficiency and compliance. Distributions may be characteristically classified as dividends, salary, or withdrawals, each with distinct tax consequences.

Advising Bob involves balancing tax minimization, liability protection, and succession planning. After analyzing the options, forming an LLC taxed as an S corporation appears optimal, providing limited liability, pass-through taxation, and flexibility for future ownership transfers. The agreement should specify the structure of distributions, roles, and responsibilities, ensuring tax advantages are maximized while maintaining compliance.

Overall, the selection of the LLC-S corporation hybrid aligns with IRS regulations, offers personal asset protection, and facilitates favorable tax treatment. This choice aligns with Bob’s strategic goals and minimizes potential tax liabilities stemming from capital gains, employment taxes, and income allocations. Incorporating future considerations regarding family involvement and estate planning further enhances the sustainability and tax efficiency of the business structure.

References

• IRS. (2022). Publication 334: Tax Guide for Small Business. Internal Revenue Service.
• IRS. (2022). Form 1040 and Schedule D instructions. Internal Revenue Service.
• United States Code, Title 26, Internal Revenue Code. (2022).
• Clark, W. (2020). Tax Planning for Small Business: Strategies and Solutions. Tax Journal, 77(3), 45-59.
• Fraser, R. (2021). Business Entity Selection and Tax Implications. Journal of Tax Economics, 10(2), 120-137.
• Arizona State University. (2020). LLCs and S-Corporations: Tax and Liability Considerations. Business Law Review.
• U.S. Small Business Administration. (2023). Choosing Business Structures. SBA.gov.
• American Institute of CPAs. (2021). Tax Practice Guide. AICPA Publications.
• Gordon, M., & Miller, P. (2019). Accounting Methods and Revenue Recognition in Small Businesses. Journal of Financial Reporting.
• Thompson, L. (2022). Capital Gains Tax Strategies for Land Sales. Real Estate Tax Journal, 15(4), 28-35.