You have been hired by Samuel and Sara to provide tax advice on the formation of a new business. Samuel and Sara have agreed in principle to form Dual Dragons Co., a new entity established to manufacture semi-conductor chips. Samuel and Sara will contribute cash plus property for their ownership interest in the company. Expected results for the first year of operations in 2022 are projected as follows:

Sales	$ 1,500,000
Interest Income - from a bank	$ 3,200
Royalties	$ 60,000
Loss from sale of investment	$ (7,000)
Cost of goods sold	$ 622,000
Salaries	$ 450,000
Rent	$ 144,000
Maintenance	$ 24,000
Utilities	$ 58,000
EPA penalty	$ 1,000
Depreciation	?
Charitable contribution	$ 30,000
payment to Samuel for retirement*	$ 15,000

*payment considered a guaranteed payment if the entity is a partnership

The companys only depreciable asset is equipment (useful life of 5 years) which will be purchased in 2022 for $100,000.

You can expect two upcoming meetings on Tuesday and on Thursday where you will receive additional information from Samuel and Sara regarding formation of the company and expected operations and distributions for 2022 and 2023.

To prepare in advance, you should set up a framework for analysis in an excel spreadsheet to compare the tax effect of the different business entity types: C corporation, Partnership, and S corporation. You should expect to compare the tax effects of the formation, operations, and distributions for Samuel, Sara, and Dual Dragons Co. Ultimately, you should expect the owners to ask for your recommendation regarding choice of a business entity.

Note: the project will be completed in class on June 6th and June 8th.

You must be present in class and must fully participate in the preparation of a solution to receive a grade for this project.

Required:

• Complete and submit the Advanced Prep prior to class.
• This comprehensive project will require you to compare the taxation of business entitities over two days of class work.