TAX 650 Data Sheet for Final Project

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.

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

Question:

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

B. Identify the tax consequences on the sale or exchange of the land consistent with capital gain rules. Consider the selling expense, brokers fees, closing costs, appraisals, and surveys and the correct schedule form to complete.

C. Describe the after-tax effects on the clients cash flow based on the sale of the land. Reference appropriate capital gains tax rules.

D. Explain whether or not the client and his child should take a salary or cash distribution according to tax purposes and Internal Revenue Code and Treasury regulations. Consider the type of business and the tax effect whether it is salary, dividends, or cash withdrawal.