Hi,

I have a Taxation course HW. Anyone's helps greatly appreciated. Deadline is May 28th Saturday by noon. Thanks for your help!

Entities Taxation Case Comparison of the Forms of Doing Business -----------------------------------------------------------------------------------------------------------------------------Facts: Richardson Company is in its first year of operations as a hardware and software retailer (with occasional consulting jobs). Richardson reports the following 2011 results (without respect to the type of entity): \"Business\" Income: Sales (net of returns and allowances) Gross Consulting Fees Collected Dividend Income (5% investment in Novice Software Co.) Loss on Sale of Novice Stock ($28,000 - $33,000, held 11 months) $ 490,000 30,000 4,000 (5,000) \"Business\" Expenses and Costs: Cost of Goods Sold Salaries of 5 employees other than owner Tony Richardson ($30,000 each) Payroll taxes paid on employees [($150,000 x .0765) + ($35,000 x .062)] Health insurance coverage for employees ($3,000 x 5) Retirement plan contributions for employees (10% of salaries) MACRS depreciation on various company assets Interest, rent, utilities, insurance, supplies, and miscellaneous expenses Contributions to public charities (142,200) (150,000) (13,645) (15,000) (15,000) (35,748) (59,337) (13,300) Compensation to Owners of \"Business\": Reasonable salary compensation to Tony Richardson Other cash payments to owners Health insurance coverage for Tony Richardson Retirement plan contribution for owner (10% of \"reasonable salary\") (65,000) (20,000) (3,000) (5,500) Tony and Ellen Richardson (both age 53) file a joint federal income tax return in 2011. They do not have any dependents. In addition to any compensation/income from the business described above, Ellen received a salary of $41,300 from ED Industries. Tony and Ellen also received $1,400 personal interest on a joint account, $1,200 personal dividends from jointly-held Thomson Company stock, and $9,200 from the sale of 100 shares of Thomson stock (originally acquired 5 years ago for $3,100). Tony and Ellen's personal expenses for 2011 include $2,600 personal property taxes, $12,400 state income taxes, 10,300 charitable contributions (not including the amounts mentioned above), $8,800 interest on personal home mortgage, and $2,600 of unreimbursed employee expenses by Ellen. Required: 1. For each of the following entity assumptions, determine the total taxes paid for tax year 2011 by completing the schedule shown below. Also, please show all of your calculations. Assuming that Richardson Company is operated as a sole proprietorship, determine the Richardson's final federal income tax liability (including any self-employment tax) (Note - the assumption that the pension contribution on Tony's behalf is 10% of the $65,000 \"reasonable salary\" is somewhat unrealistic (normally, the amount would be based on the sole proprietorship income), but this assumption is made to make the four entity results roughly comparable). Assuming that Richardson Company is operated as a partnership (assuming that Tony Richardson is essentially a 100% partner, with a minimal interest held by Ellen), determine the Richardson's final federal income tax liability (including any self-employment tax). For these purposes, allocate 100% of all partnership items to Tony Richardson. (The same pension contribution assumption mentioned in \"a\" also applies here.) Assuming that Richardson Company is operated as an S corporation (with Tony Richardson [DD] as essentially a 100% shareholder), determine the Richardson's final federal income tax liability and any FICA taxes paid on Tony's compensation by Tony and by Richardson Company Once again, allocate 100% of all S corporation items to Tony Richardson. Assuming that Richardson Company is operated as a C corporation (with Tony Richardson (DD) as a 100% shareholder), determine the final corporate income tax liability of Richardson Co., the Richardson's final federal income tax liability any FICA taxes paid on Tony's compensation by Tony and by Richardson Company Answer Summary Corporate Income Taxes Paid FICA Tax on TR - Paid by TR FICA Tax on TR - Paid by Company Unemp. Tax on TR - Paid by Company Self-Employment Tax Paid by TR Fed Inc Tax Paid by Richardsons Total Taxes 2. S. Propr NA NA NA NA P'ship NA NA NA NA S Corp NA C Corp NA NA Prepare a tax memo and draft client letter indicating your recommendation to the Richardsons as to the preferred entity. Provide the appropriate tax citations and explain why you believe this method will be the best method. Your tax partner wants the material to be provided in an easy to read format for these clients. ANSWER 1. Response Question1 \"Business\" Income: Sales (net of returns and allowances) Gross Consulting Fees Collected Dividend Income (5% investment in Novice Software Co.) Loss on Sale of Novice Stock ($28,000 - $33,000, held 11 months) $ 490,000 30,000 4,000 (5,000) 519,000 \"Business\" Expenses and Costs: Cost of Goods Sold (142,200) Salaries of 5 employees other than owner Tony Richardson ($30,000 each) (150,000) Payroll taxes paid on employees [($150,000 x .0765) + ($35,000 x .062)] (13,645) Health insurance coverage for employees ($3,000 x 5) (15,000) Retirement plan contributions for employees (10% of salaries) (15,000) MACRS depreciation on various company assets (35,748) Interest, rent, utilities, insurance, supplies, and miscellaneous expenses (59,337) Contributions to public charities (13,300) Net Income Compensation to Owners of \"Business\": Reasonable salary compensation to Tony Richardson Other cash payments to owners Health insurance coverage for Tony Richardson Retirement plan contribution for owner (10% of \"reasonable salary\") (444,230) 74,770 (65,000) (20,000) (3,000) (5,500) (93500) \"TR Joint\" Income: Tony and Ellen Joint Income Ellen salary 41,300 TR Personal Interest 1,400 Personal Dividends 1,200 Proceeds from Shares 9,200 Total Joint Income 53,100 Tony and Ellen Personal Expenses Personal Property Taxes (2,600) State Income Taxes (12,400) Charitable Contributions (10,300) Interest on home mortgage (8,800) Unreimbursed employee expense (2,600) Total Joint Expenses (36,700) Net Joint Income 16,400 Workngs 1. Corporate Income Taxes Paid for a C Corporation = Income X Average tax rates Taxable Income= 74,770 Tax Payable = $7,500 2. FICA Tax on TR - Paid by TR (a) For S Corporation (Reasonable salary +Business Income) X Current FICA rate (65,000+74,770) X 1.45% = 2026.67 (b) For C Corporation FICA Tax on TR - Paid by TR = Business Income X Current FICA rate = 74,770 X 1.45% = 1084.17 3. FICA Tax on TR - Paid by Company (a) For S Corporation FICA paid by TR = 2026.67 (Calculated in (2a) above) FICA for the five employees = (30,000 X 1.45%) 5 = 2175 Total FICA paid by the Compnay = 2026.67 + 2175 = 4301.67 (b) For the C Corpotation FICA paid by the Company = 1084.17 (See 2b. above) FICA for the 5 employees = 2175 (See 3. Above) Total = 1087.17 +2175 = 3262.17 4. Unemp. Tax on TR - Paid by Company (a) For S Corp. Taxable Income = 74,770 Tax Payable= $ 7,500 b. For C Corp Income X Current rates Taxable Income = 74,770 Tax Payable= $ 7,500 5. Self-Employment Tax Paid by TR (a) For sole proprietorship (Joint Income + Business income) X Current rates Joint Income + Business Income = 74,770+16,400 = 91,170 Taxable Income X Tax Rate $18,450 X 10% $72,720 X 15% Total Tax Payable 1,845 10,908 $12,753 (b) For Partnership Business Income X Current rates Business Income = 74,770 Taxable Income X Tax Rate $18,450 X 10% $56,320 X 15% Total 6. Fed Inc Tax Paid by Richardsons (a) For S. Corp. =12,753 Tax Payable 1,845 8,448 $10,293 (b) For P'ship =10,293 (c) For S Corp. =2026.67 + 3331.67 + 3996 = 9,354.34 (d) For C Corp = 9,421.02 + 1084.17 + 3996 = 16,893.36 Completed Tax Schedule for Tony Richards in 2011 Corporate Income Taxes Paid FICA Tax on TR - Paid by TR FICA Tax on TR - Paid by Company Unemp. Tax on TR - Paid by Company Self-Employment Tax Paid by TR Fed Inc Tax Paid by Richardsons Total Taxes S. Propr NA NA P'ship NA NA S Corp NA C Corp 2026.67 9,421.02 1084.17 NA NA NA NA 3331.67 3996 2392.17 3996 12,753 10,293 NA 12,753 10,293 9,354.34 25,506 20,586 18,708.68 NA 16,893.3 6 33,786.7 2 Question 2 (a) Tax memo Tax Research Memo (Students Name) (Submission Date) Relavant Facts A thorough scrutiny of the different types of taxes you are supposed to pay as outlined in the tax schedule above. The total taxes for S. Propr, P'ship, S Corp and C Corp are $25,506, $20,586, $18,708.68 and $33,786.72 respectively. Specific Issues Given the above tax totals, you should invest in a business entity that attracts the lowest tax payables. Concluison The above facts reveal that S Corp. Business entity is the best business investment. Support The S Corp Business entity has the lowest total taxes payable. Actions to Be Taken You have to go through the attached tax schedule to find the reason why S Corp is proposed to be the best business entity to invest in. (b) Letter (Student's Name) (Street Address) (City, Zip Code) (Submision Date) Tony Richardson Richardson Company (Address) (City, St Zip) Dear Richardson, This is to inform you that an S Corporation would be the best investment entity. Following a thorough scrutiny of the total tax you will be required to pay for the various business entities described in tax schedule above, S Corporation was found to be the most preferred since it has the lowest total taxes payable. Please go through the tax schedule above for more information. Sincerely, (Student's Name) Response Question1 \"Business\" Income: Sales (net of returns and allowances) Gross Consulting Fees Collected Dividend Income (5% investment in Novice Software Co.) Loss on Sale of Novice Stock ($28,000 - $33,000, held 11 months) $ 490,000 30,000 4,000 (5,000) 519,000 \"Business\" Expenses and Costs: Cost of Goods Sold (142,200) Salaries of 5 employees other than owner Tony Richardson ($30,000 each) (150,000) Payroll taxes paid on employees [($150,000 x .0765) + ($35,000 x .062)] (13,645) Health insurance coverage for employees ($3,000 x 5) (15,000) Retirement plan contributions for employees (10% of salaries) (15,000) MACRS depreciation on various company assets (35,748) Interest, rent, utilities, insurance, supplies, and miscellaneous expenses (59,337) Contributions to public charities (13,300) Net Income Compensation to Owners of \"Business\": Reasonable salary compensation to Tony Richardson Other cash payments to owners Health insurance coverage for Tony Richardson Retirement plan contribution for owner (10% of \"reasonable salary\") (444,230) 74,770 (65,000) (20,000) (3,000) (5,500) (93500) \"TR Joint\" Income: Tony and Ellen Joint Income Ellen salary 41,300 TR Personal Interest 1,400 Personal Dividends 1,200 Proceeds from Shares 9,200 Total Joint Income 53,100 Tony and Ellen Personal Expenses Personal Property Taxes (2,600) State Income Taxes (12,400) Charitable Contributions (10,300) Interest on home mortgage (8,800) Unreimbursed employee expense (2,600) Total Joint Expenses (36,700) Net Joint Income 16,400 Workngs 1. Corporate Income Taxes Paid for a C Corporation = Income X Average tax rates Taxable Income= 74,770 Tax Payable = $7,500 2. FICA Tax on TR - Paid by TR (a) For S Corporation (Reasonable salary +Business Income) X Current FICA rate (65,000+74,770) X 1.45% = 2026.67 (b) For C Corporation FICA Tax on TR - Paid by TR = Business Income X Current FICA rate = 74,770 X 1.45% = 1084.17 3. FICA Tax on TR - Paid by Company (a) For S Corporation FICA paid by TR = 2026.67 (Calculated in (2a) above) FICA for the five employees = (30,000 X 1.45%) 5 = 2175 Total FICA paid by the Compnay = 2026.67 + 2175 = 4301.67 (b) For the C Corpotation FICA paid by the Company = 1084.17 (See 2b. above) FICA for the 5 employees = 2175 (See 3. Above) Total = 1087.17 +2175 = 3262.17 4. Unemp. Tax on TR - Paid by Company (a) For S Corp. Taxable Income = 74,770 Tax Payable= $ 7,500 b. For C Corp Income X Current rates Taxable Income = 74,770 Tax Payable= $ 7,500 5. Self-Employment Tax Paid by TR (a) For sole proprietorship (Joint Income + Business income) X Current rates Joint Income + Business Income = 74,770+16,400 = 91,170 Taxable Income X Tax Rate $18,450 X 10% $72,720 X 15% Total Tax Payable 1,845 10,908 $12,753 (b) For Partnership Business Income X Current rates Business Income = 74,770 Taxable Income X Tax Rate $18,450 X 10% $56,320 X 15% Total 6. Fed Inc Tax Paid by Richardsons (a) For S. Corp. =12,753 Tax Payable 1,845 8,448 $10,293 (b) For P'ship =10,293 (c) For S Corp. =2026.67 + 3331.67 + 3996 = 9,354.34 (d) For C Corp = 9,421.02 + 1084.17 + 3996 = 16,893.36 Completed Tax Schedule for Tony Richards in 2011 Corporate Income Taxes Paid FICA Tax on TR - Paid by TR FICA Tax on TR - Paid by Company Unemp. Tax on TR - Paid by Company Self-Employment Tax Paid by TR Fed Inc Tax Paid by Richardsons Total Taxes S. Propr NA NA P'ship NA NA S Corp NA C Corp 2026.67 9,421.02 1084.17 NA NA NA NA 3331.67 3996 2392.17 3996 12,753 10,293 NA 12,753 10,293 9,354.34 25,506 20,586 18,708.68 NA 16,893.3 6 33,786.7 2 Question 2 (a) Tax memo Tax Research Memo (Students Name) (Submission Date) Relavant Facts A thorough scrutiny of the different types of taxes you are supposed to pay as outlined in the tax schedule above. The total taxes for S. Propr, P'ship, S Corp and C Corp are $25,506, $20,586, $18,708.68 and $33,786.72 respectively. Specific Issues Given the above tax totals, you should invest in a business entity that attracts the lowest tax payables. Concluison The above facts reveal that S Corp. Business entity is the best business investment. Support The S Corp Business entity has the lowest total taxes payable. Actions to Be Taken You have to go through the attached tax schedule to find the reason why S Corp is proposed to be the best business entity to invest in. (b) Letter (Student's Name) (Street Address) (City, Zip Code) (Submision Date) Tony Richardson Richardson Company (Address) (City, St Zip) Dear Richardson, This is to inform you that an S Corporation would be the best investment entity. Following a thorough scrutiny of the total tax you will be required to pay for the various business entities described in tax schedule above, S Corporation was found to be the most preferred since it has the lowest total taxes payable. Please go through the tax schedule above for more information. Sincerely, (Student's Name)