On February 28, 2023, Mary Jane and her husband Peter, both architects, come to your accounting firm to seek help. They tell you, We are concerned were paying more tax than we owe. Our last accountant said we dont qualify for the QBI deduction because we are in the service industry, we are both architects. But we recently heard that might not be true? Wed like to provide you with their 10-year projection plan and ask if youll help determine if they are correct or incorrect.

Below is what we know:

Income Projections

o Year 2023: $220,000

o Future Years: $30,000 more each year

Tax Rates and Limits:

o Year 2023: Correct for 2023

o Future Years: Leave as 2023 (i.e., dont estimate inflation adjustments)

QBI Deduction:

o Year 2023: $0? we dont think this is right.

o Future Years: Even though QBI sunsets (legally ends) in 2025, were okay assuming it will be extended through 2025.

After-Tax Cash Flows:

o Year 2023: Wed like $156,000 in after-tax cash flows to live off of, the rest can stay in the business.

o Future Years: This number can remain the same and ignore inflation.

We are currently a Partnership, but our other accountant suggested we switch to S-Corporation immediately. He provided a comparative analysis page, but it just showed our revenue and after-tax cash flows, that were identical for both entity types. That didnt really help us understand why we should switch or what is the cost difference between switching. Hence why we came to you, we really dont think the previous person knew what they were doing.

Provide a deliverable that includes:

1. A one-page memo with:

a. Your recommendation as to whether or not Mary-Jane and Peter should switch to an S-Corporation or stay a Partnership, and if they should switch, when should they do so.

b. A summary table comparing showing what you believe are the key important figures someone would want to know in making an entity choice decision as well as they reason the final cash flows are different.