Scenario

Juwan Smith and three friends from law school recently formed Smith & Associates as an LLP $($Limited Liability Partnership$).$ Income from the partnership will be split equally among the partners. The partnership will generate their income primarily from representing clients in bankruptcy and foreclosure matters. While some attorney friends have suggested that partners$$ earnings will be self$-$employment income, other attorneys know that their local bar association meetings claim W$2$ or guaranteed income. After examining relevant authority, explain how you would advise Smith & Associates on this matter.

This activity will support your ability to provide client advice in your Project Two milestone and in Project Two.

Directions

Considering the scenario above, write a $1-$ to $2-$page client letter evaluating and advising this company on their tax planning strategy.

Specifically, you must address the following rubric criteria:

Explain the ethical principles influencing the way this entity can choose to report their income. Consider the following in your response:

Reporting the partners$$ earnings

Partner income and its impacts self$-$employment or partnership

Additional employees$$ payment

Ethics withing reporting or not reporting earnings as self$-$employment

Evaluate two different tax planning strategies. Include the following in your response:

Expense in each strategy

Taxable income for each strategy

Discuss entity alternatives for this company. Include the following in your response:

Entity organization that would result in a total reduction in tax liability

Partnerships within the entity organization