Client Profile

Bob Jones is a 60-year-old single man who 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.

Bobs personal wealthincluding investments in land, stocks, and bondsis about $14,000,000. He reported an interest income of $20,000 and a dividend income of $6,000 last year. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1996 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, who is 23 years old and single.

Tax Year: 2020

Other Considerations Bob has offered this info as possible deductions: Mortgage Interest: $19,250 Charitable Contributions: $22,500 Medical Expenses o Cosmetic nose job: $3,000 o Prescriptions: $1,710 o Over-the-counter medicines: $285 o Health insurance premiums: $5,800 o Doctor visits: $1,140 o Medical miles: 499 Real Estate Property Taxes: $8,000 Personal Property Taxes: $3,000 Credit Card Interest for Home Improvements: $1,800 Personal Legal Expenses: $5,000 Contribution to Major Political Party: $2,000 Miscellaneous Deductions o Tax preparation feed (personal return): $500 o Investment expenses: $3,100 You will recommend that Bob either takes a salary of $100,000 or a cash distribution of $180,000. Assume no federal income taxes will be withheld. The $300,000 net income already accounts for the salary expense Bob receives and the cash distribution, where applicable.

Additional Data Business Tax ID #: 41-0000000 Business Name: Bob Jones Automotive Gallery Land Purchased: January 2, 1996 Sale Date: September 15, 2018 Personal Tax ID #: 500-00-1004 Personal Address: o 1234 Easy Street Pensacola, FL 32581 Phone: 850-123-4567

Resources

Form 1040: https://www.irs.gov/pub/irs-pdf/f1040.pdf

Form 1040-SR: https://www.irs.gov/pub/irs-pdf/f1040s.pdf

Schedule A: https://www.irs.gov/pub/irs-pdf/f1040sa.pdf

Schedule B: https://www.irs.gov/pub/irs-pdf/f1040sb.pdf

Schedule C: https://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Schedule D: https://www.irs.gov/pub/irs-pdf/f1040sd.pdf

Schedule E: https://www.irs.gov/pub/irs-pdf/f1040se.pdf

Schedule EIC: https://www.irs.gov/pub/irs-pdf/f1040sei.pdf

Schedule F: https://www.irs.gov/pub/irs-pdf/f1040sf.pdf

Schedule H: https://www.irs.gov/pub/irs-pdf/f1040sh.pdf

Schedule SE: https://www.irs.gov/pub/irs-pdf/f1040sse.pdf

Schedule 8812: https://www.irs.gov/pub/irs-pdf/f1040s8.pdf

Form 8949: https://www.irs.gov/pub/irs-pdf/f8949.pdf

2020 Tax and Earned Income Credit Tables: https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

2020 Taxable and Nontaxable Income: https://www.irs.gov/pub/irs-pdf/p525.pdf

Publication 550 (2019), Investment Income and Expenses (Including Capital Gains and Losses): https://www.irs.gov/publications/p550

Publication 535 (2020), Business Expenses: https://www.irs.gov/publications/p535

Publication 544 (2019), Sales and Other Dispositions of Assets: https://www.irs.gov/publications/p544

Publication 575, Pension and Annuity Income: https://www.irs.gov/pub/irs-pdf/p575.pdf

Question

Compute the property disposition capital gains and taxation of gross income.