For my project I need to pick a business entity. I know the business entity would be a sole proprietorship, I just need help with the wording as to why it would be a sole proprietorship using IRS tax codes. Attached is the milestone 3 that I need help with, the overview is just what my whole project is about, and so the last attachment is everything to this point.

TAX 650 Milestone Three Guidelines and Rubric In this short paper, you will recommend a type of business entity for the client described in the final project. In explaining your recommendation, discuss liability issues, tax effects, and the economic impact on the client's personal returns. Justify your recommendation regarding whether the client's daughter should have an ownership interest in the new company with details related to the transaction. Specifically, the following critical elements must be addressed: A. Recommend a type of business entity for the client to consider based on your tax research. Consider justifying your recommendation using the code and regulations that relate to the business entity. B. Justify whether or not the client should choose a business entity that has limited liability protection. Be sure to include possible future liability issues based on the potential economic impact and appropriate IRS code and regulations. C. Describe the tax effect on the recommended business entity and the impact it will have on the client's personal tax return. Consider addressing how the business entity affects the completion of the 1040 tax form. D. Evaluate the economic impact on the client's personal returns based on the recommended entity. Justify why the client would not choose the other business entities by informing the client of the differences. E. Justify your recommendation regarding the client's daughter having an ownership interest. Provide details supporting the recommendation taking into consideration the jargon and mechanics of the transaction. Guidelines for Submission: Your paper must be submitted as a 2-3-page Microsoft Word document with double spacing, 12-point Times New Roman font, oneinch margins, and at least three sources cited in APA format. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Business Entity Proficient (100%) Recommends a type of business entity for the client to consider that is based on tax research Limited Liability Protection Justifies whether or not the client should choose a business entity that has limited liability protection and includes possible future liability issues consistent with IRS code and regulations Needs Improvement (75%) Recommends a type of business entity but either the cited IRS code and regulations are inaccurate or details are cursory Justifies whether or not to choose a business entity that has limited liability protection but does not include possible future liability issues, possible future liability issues are not consistent with IRS code and regulations, or details are either inaccurate or cursory Not Evident (0%) Does not recommend a type of business entity Does not justify whether or not to choose a business entity that has limited liability protection Value 20 20 Tax Effect Describes the tax effect on the recommended business entity and the impact on the client's personal tax return Economic Impact: Personal Returns Evaluates the economic impact on the client's personal returns based on the recommended entity and justifies response by including information about the other entities Justifies recommendation regarding the client's daughter having an ownership interest using details supporting the recommendation Submission has no major errors related to citations, grammar, spelling, syntax, or organization Ownership Interest Articulation of Response Describes the tax effect on the recommended business entity and the impact on the client's personal tax return, but details are irrelevant or cursory Evaluates the economic impact of client's personal returns but does not provide justification or details lack relevance or are cursory Does not describe the tax effect on the recommended business entity and the impact on the client's personal tax return 20 Does not evaluate the economic impact of client's personal returns 15 Justifies recommendation regarding client's daughter having an ownership interest but details either lack relevance or are cursory Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas Does not justify the recommendation regarding client's daughter having ownership interest 15 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas Earned Total 10 100% TAX 650 Final Project Guidelines and Rubric Overview 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 IRS code and 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 Prompt 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: I. Memorandum A. Recommend a type of business entity for the client to consider based on your tax research. Consider justifying your recommendation using the code and regulations that relate to the business entity. B. Differentiate between accrual accounting and cash basis. Based on the type of business and the client's accounting system, what is the impact when revenue is recognized? C. Based on the decision of accrual vs. cash basis, describe when revenue would be recognized on the sale of inventory, and how the accrual reporting differs from cash basis. D. Determine the economic impact on the client's financial situation. Based on your decision, determine the potential tax liability, keeping in mind appropriate IRS code and regulations. E. 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. F. Justify whether or not the client should choose a business entity that has limited liability protection. Be sure to include possible future liability issues based on the potential economic impact and appropriate IRS code and regulations. G. Describe the tax effect on the recommended business entity and the impact it will have on the client's personal tax return. Consider addressing how the business entity affects the completion of the 1040 tax form. II. Conclusion A. Evaluate the economic impact on the client's personal returns based on the recommended entity. Justify why the client would not choose the other business entities by informing the client of the differences. B. Justify your recommendation regarding the client's daughter having an ownership interest. Provide details supporting the recommendation taking into consideration the jargon and mechanics of the transaction. C. Summarize, using moral reasoning, cash or accrual basis accounting systems in relation to the selected business entity. Consider how the accounting system impacts revenue recognition, consistent with IRS code and regulations. D. 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. E. Explain whether or not the client and his child should take a salary or cash distribution according to tax purposes and IRS code and regulations. Consider the type of business and the tax effect whether it is salary, dividends, or cash withdrawal. III. Appendix Based on your recommendation to the client regarding proprietorship, taxable income, and sale of land, complete the appropriate tax schedules and forms described below. A. Prepare the appropriate page of Form 1040 and include the sale of the client's land on the appropriate tax schedule and form for the recommended business entity. Be certain to complete each tax schedule and form accurately and completely. B. Prepare the appropriate schedule and tax forms to reflect taxable income based on your calculations and the disposition of asset. Be certain to complete each tax schedule and form accurately and completely. C. Illustrate how creative problem solving and versatility of thought impact professional advice that you intended to result in the best economic solutions for the client. Consider providing real-world examples to support your claims. Milestones Milestone One: Gross Income and Capital Gains In Module Three, you will submit a draft of the gross income and capital gains, analyzing the following critical elements: I. Memorandum, section E, and II. Conclusion, sections D and E. 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 IRS code and regulations. This assignment will be submitted as a Word document. This milestone is graded with the Milestone One Rubric. Milestone Two: Revenue Recognition and Accounting Methods In Module Five, you will submit a draft of the revenue recognition and accounting methods, summarizing the following critical elements: I. Memorandum, sections B, C, and D, and II. Conclusion, section C. You will determine revenue recognition and the economic impact of the client's financial situation. Based on your decision, determine the potential tax liability, keeping in mind appropriate IRS code and regulations. This assignment will be submitted as a Word document. This milestone is graded with the Milestone Two Rubric. Milestone Three: Choice of Business Entity In Module Seven, you will submit a draft of the choice of business entity, analyzing the following critical elements: I. Memorandum, sections A, F, and G, and II. Conclusion, sections A and B. The short paper will communicate tax aspects of business entities to the client. This assignment will be submitted as a Word document. This milestone is graded with the Milestone Three Rubric. Milestone Four: Tax Forms In Module Eight, you will submit IRS draft tax forms, analyzing all of the critical elements in III. Appendix, sections A, B, and C. Based on your research, the tax forms and schedules will support your recommendation to the client. This assignment will be submitted as completed tax forms, which are provided to you in your textbook resource CD or on the IRS website. This milestone is graded with the Milestone Four Rubric. Final Submission: Memorandum With Appendix In Module Nine, you will submit a memorandum with an appendix to the client and all IRS tax forms and schedules necessary to support your advice. It should be a complete, polished artifact containing all of the critical elements of the final product. It should reflect the incorporation of feedback gained throughout the course. This submission is graded with the Final Product Rubric. Deliverables Milestone One Two Deliverable Gross Income and Capital Gains Module Due Three Grading Graded separately; Milestone One Rubric Five Graded separately; Milestone Two Rubric Three Revenue Recognition and Accounting Methods Choice of Business Entity Seven Graded separately; Milestone Three Rubric Four Tax Forms Eight Graded separately; Milestone Four Rubric Final Submission: Memorandum With Appendix Nine Graded separately; Final Product Rubric Final Product Rubric Guidelines for Submission: Your memorandum must be 7 to 10 pages in length (plus a cover page and references) and must be written in APA format. Use double spacing, 12-point Times New Roman font, and one-inch margins. Your memorandum must include an appendix containing electronic versions of the appropriate IRS tax schedules and forms. Include at least three references cited in APA format. Instructor Feedback: This activity uses an integrated rubric in Blackboard. Students can view instructor feedback in the Grade Center. For more information, review these instructions. Critical Elements Memo: Business Entity Exemplary Meets \"Proficient\" criteria and details are justified using appropriate IRS code and regulations relevant to recommended business entity (100%) Proficient Recommends a type of business entity for the client to consider that is based on tax research (90%) Needs Improvement Recommends a type of business entity but either the cited IRS code and regulations are inaccurate or details are cursory (70%) Not Evident Does not recommend a type of business entity (0%) Value 6.4 Memo: Accrual Accounting vs. Cash Basis Meets \"Proficient\" criteria and provides a full description of which entities require accrual and when it is optional (100%) Differentiates between accrual accounting and cash basis and identifies the impact of the revenue (90%) Memo: Revenue Recognized on the Sale Meets \"Proficient\" criteria and describes the installment method of reporting revenue (100%) Memo: Economic Impact Meets \"Proficient\" criteria and addresses payroll tax issues and self-employment tax (100%) Memo: Tax Consequences Meets \"Proficient\" criteria and comprehensively addresses all expenses including how best to report on the schedule (100%) Meets \"Proficient\" criteria and includes information about limited liability companies (100%) Describes when revenue would be recognized and how the reporting differs for accrual accounting vs. cash basis (90%) Determines the economic impact on the client's financial situation and potential tax liability, and determinations are consistent with IRS code and regulations (90%) Identifies the tax consequences on the sale or exchange of the land consistent with capital gains rules (90%) Justifies whether or not the client should choose a business entity that has limited liability protection and includes possible future liability issues consistent with IRS code and regulations (90%) Memo: Limited Liability Protection Memo: Tax Effect Meets \"Proficient\" criteria and addresses the client's after tax flow (100%) Describes the tax effect on the recommended business entity and the impact on the client's personal tax return (90%) Differentiates between accrual accounting and cash basis and identifies the impact of the revenue, but the details are inaccurate or cursory (70%) Describes when revenue would be recognized and how the reporting differs but details are inaccurate or cursory (70%) Determines the economic impact on the financial situation and potential tax liability but either the referenced IRS code and regulations are inaccurate or details are cursory (70%) Identifies tax consequences but details are either inconsistent with capital gains rules or cursory (70%) Justifies whether or not to choose a business entity that has limited liability protection but does not include possible future liability issues, possible future liability issues are not consistent with IRS code and regulations, or details are either inaccurate or cursory (70%) Describes the tax effect on the recommended business entity and the impact on the client's personal tax return, but details are irrelevant or cursory (70%) Does not differentiate between accrual accounting and cash basis or does not identify the impact of the revenue (0%) 6.4 Does not describe when revenue would be recognized or how the reporting differs (0%) 6.4 Does not determine the economic impact on the financial situation and potential tax liability (0%) 6.4 Does not identify tax consequences (0%) 6.4 Does not justify whether or not to choose a business entity that has limited liability protection (0%) 6.4 Does not describe the tax effect on the recommended business entity and the impact on the client's personal tax return (0%) 6.4 Conclusion: Economic Impact: Personal Returns Meets \"Proficient\" criteria and shows keen insight into the advantages and disadvantages of choosing appropriate business entities (100%) Conclusion: Ownership Interest Meets \"Proficient\" criteria and uses appropriate voice for the audience (100%) Conclusion: Cash or Accrual Basis Accounting System Meets \"Proficient\" criteria and identifies the impact on revenue recognition consistent with IRS code and regulations (100%) Conclusion: Tax Effects on Cash Flow Meets \"Proficient\" criteria and cites capital gains tax rules relating to gains and losses (100%) Conclusion: Salary or Cash Distribution Meets \"Proficient\" criteria and includes the tax effect on salary, dividends, or cash withdrawal (100%) Appendix: Form 1040 Evaluates the economic impact on the client's personal returns based on the recommended entity and justifies response by including information about the other entities (90%) Justifies recommendation regarding the client's daughter having an ownership interest using details supporting the recommendation (90%) Summarizes, using moral reasoning, cash or accrual basis accounting systems in relation to the selected business entity consistent with appropriate IRS code and regulations (90%) Describes the after tax effects on the client's cash flow based on the sale of the land that is needed to start the business (90%) Explains whether or not the client and his child should take a salary or cash distribution according to tax purposes and IRS code and regulations (90%) Prepares the appropriate page of Form 1040 accurately and completely, including the sale of the client's land on the appropriate tax form and schedule (100%) Evaluates the economic impact of client's personal returns but does not provide justification or details lack relevance or are cursory (70%) Does not evaluate the economic impact of client's personal returns (0%) 6.4 Justifies recommendation regarding client's daughter having an ownership interest but details either lack relevance or are cursory (70%) Summarizes cash or accrual basis accounting systems in relation to the selected business entity, but details either lack moral reasoning or are cursory (70%) Does not justify the recommendation regarding client's daughter having ownership interest (0%) 6.4 Does not summarize cash or accrual basis accounting systems in relation to the selected business entity (0%) 6.4 Describes the after tax effects on the client's cash flow that are needed to start the business but details are either inaccurate or cursory (70%) Explains whether or not the client and his child should take a salary or cash distribution but details are cursory or not consistent with tax purposes and IRS code and regulations (70%) Prepares the appropriate page of Form 1040 on the appropriate tax form and schedule, but details are either incomplete or inaccurate (70%) Does not describe the after tax effects on the client's cash flow that are needed to start the business (0%) 6.4 Does not explain whether or not the client and his child should take a salary or cash distribution (0%) 6.4 Does not complete the appropriate page of Form 1040 and does not include the sale of the client's land on the appropriate tax form and schedule (0%) 6.4 Appendix: Schedule and Tax Form Appendix: Professional Advice Meets \"Proficient\" and provides real-world examples to support claims (100%) Articulation of Response Submission is free of errors related to citations, grammar, spelling, syntax, and organization and is presented in a professional and easy-to-read format (100%) Prepares the appropriate schedule and tax form accurately and completely, reflecting taxable income based on calculations and the disposition of asset (100%) Illustrates how creative problem solving and versatility of thought impacts professional advice intended to result in the best economic solutions for the client (90%) Submission has no major errors related to citations, grammar, spelling, syntax, or organization (90%) Prepares the appropriate schedule and tax form reflecting taxable income but details are incomplete or inaccurate (70%) Does not prepare the appropriate tax form reflecting taxable income (0%) 6.4 Illustrates how creative problem solving and versatility of thought impacts professional advice intended to result in the best economic solutions for the client but details are irrelevant or cursory (70%) Submission has major errors related to citations, grammar, spelling, syntax, or organization that negatively impact readability and articulation of main ideas (70%) Does not illustrate how creative problem solving and versatility of thought impacts professional advice intended to result in the best economic solution for the client (0%) 6.4 Submission has critical errors related to citations, grammar, spelling, syntax, or organization that prevent understanding of ideas (0%) 4 Earned Total 100% For my client Bob I would recommend a Limited Liability Company or Sole Proprietorship, because he wouldn't have to hold annual meetings and they are both easy to form and operate. The difference between the two is that with an LLC is separate from its owners and one would separate personal assets from business debts. With a SP the owner is held liable for lawsuits and reports business profit and loss on their personal tax return. According to IRS form 1040 the business would report income earned on his personal tax return (Chong & Van der Linde 2014). If the business earns profits, the income is added to other incomes including interest income and the total taxed. Capital gain on land: Current value: Initial cost: $9,000,000 $450,000 Capital gain on land: $8,550,000 The taxation rates, which could be deductible from the annual income, include the total social security and Medicare tax including 12.4 per cent and 2.9 per cent respectively. The total annual income includes the following; Annual business income $300,000 Interest income $20,000 Dividend income $6,000 Total Taxable income $326,000 The tax rate that will apply is 15.3 per cent of $326,000= $49,878. During the sale of the property, Publication 523 of the IRS indicates that if the business sales the property in exchange of cash, it will be taxed. The cash will be taxed as partial sales proceeds following the sales of Bob's property, which could be generally classified as a capital gain (Roin, 2011). Under the current tax code, the long-term capital gains of individuals are taxed at a lower rate than the ordinary income. Bob's land qualified for long-term capital, as it had been held for more than 12 months, the maximum tax on long-term capital gains is 15 percent for qualifying taxpayers. However, certain assets are not eligible for capital gain treatment and the gains received on that property are treated as ordinary income and taxed at usual rate. Publication523 (2014) requires that the sale of land should be examined to confirm whether it qualified for any tax exclusion (Clark, 2013). Most of business expenses claims in their profit and loss section of tax return to lower the financial reportable income and thus, the income tax. This includes the continuing expenses such as telephone and on-ongoing items including training courses. Taxation obligations have significant impacts on cash flow and profitability. Bob might be required to pay certain taxes and installments including pas as you go installments. The tax requirements for withholding the regular payments to meet the income tax demands; such tax requirements would reduce the amount of cash flows maintained by the business (Gaertner, 2014). Therefore, the business should consider the consequences and implications of the taxes as well as understanding the computation of capital gains on land and the implications of cash flows. The accountings are distinguished as cash basis accounting is the accounting that recognizes or identify the cash when received and bills when paid (Ball et al., 2015). On the other hand accrual accounting refers to the type of accounting in the revenue is counted when it is earned and expenses when the bill is received regardless of when the cash exchange will actually occur (Miller, Mattison, & Matsumura, 2015). Cash and accrual methods are distinguished in terms of the timings on how they are accounted before the bill, expense or the actual earning of the returns. Money in the cash basis the revenues are only recorded when the cash is received and not before; which also counts the expenses only when the cash has been paid out. In the accrual system, the revenue is counted when it is earned not when it is received. Expenses are accounted for when the bill is received considering not when they are paid. In addition, the cash basis differs on how they arrange the cash tracking. The inflow and outflow of cash is recorded which not the case in the accrual is accounting (Ball et al., 2015). The revenues should be recognized only when the cash has flown into the account hence payment of any bill rely on the account return. The expenses should also be recognized when they are paid out and therefore the consideration is not when they are paid but when identified (Miller, Mattison, & Matsumura, 2015). The best option for the clients would be the Cash basis accounting as it has clear record keeping and help to monitor the business performance. The reporting of the cash confirms that the cash is received and then check done and the credit card payment executed. The reporting is clear on the cash basis as records are well accounted for while the accrual accounting the reporting is not clearly identified (Vivattanachang & Supattarakul, 2013). From the IRS codes the impacts on the cash flow and the account, report is based on the financial profit and loss on its tax return. As from Bob's case, the publication 523 of the IRS holds that when the business exchanges the property for cash, it has to be taxed (Miller, Mattison, & Matsumura, 2015). The regulations and the code bind the business to go by the tax return at all the extents to ensure the accounts performance is profitable. The IRS tax return demand has the obligations that affect negatively on the business. The account installments are recorded by the tax return terms that may remain a threat as it reduces the amount of income to the business on the withheld regulation of income tax demands (Ball et al., 2015). This accounting system assists the entity to have the account receivable. It has to recognize the tax return and as it counts before the payment, the entity may face various challenges in expanding and complying with tax return principles (Vivattanachang & Supattarakul, 2013). References Chong, J., & Van der Linde, K. (2014). Tax issues arising from the amalgamation or merger procedure in the Companies Act 71 of 2008. Stellenbosch Law Review= Stellenbosch Regstydskrif, 25(3), 471-500. Clark, R. (2013). Tax considerations in re-pricings and other alterations to debt instruments. Journal of Taxation & Regulation of Financial Institutions, 27(1). Gaertner, F. B. (2014). CEO aftertax compensation incentives and corporate tax avoidance. Contemporary Accounting Research, 31(4), 1077-1102. Roin, J. (2011). Privatization and the sale of tax revenues. Minnesota Law Review, 85, 1965. Ball, R., Gerakos, J., Linnainmaa, J. T., & Nikolaev, V. V. (2015). Accruals, Cash Flows, and Operating Profitability in the Cross Section of Stock Returns. Chicago Booth Research Paper, (15-12). Miller-Nobles, T. L., Mattison, B. L., & Matsumura, E. M. (2015). Horngren's Financial & Managerial Accounting, The Managerial Chapters. Prentice Hall. Vivattanachang, D., & Supattarakul, S. (2013). The Earnings Persistence and the Market Pricing of Earnings and their Cash Flow and Accrual Components of Thai Firms. Journal of Accounting Profession, 9(25), 63-79