Business Income Tax

13. LO. 3 Mary and Richerd plan to establish a retail business that will have outlets in six citiesin a southeastern state. Because the business probably will generate losses in at least thefirst three years, they want to use an entity that will pass the losses through to them for bothFederal and state income tax purposes. They have narrowed their choices to an S corpora-tion and a limited liability company. Advise Mary and Richerd on selecting an entity form. 15. LO. 4 Tan, Inc. , a C corporation, has been in existence for five years and has accumu-lated E & P of $990,000. It projects future earnings to continue at about $200,000 peryear. David, Tan’s sole shareholder and CEO, receives an annual salary of $400,000. a. What issues do David and Tan need to consider if their objective is to avoid doubletaxation?b. Should avoiding double taxation be a goal of David and Tan? Why or why not?

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Business Income Tax

25. LO. 2, 3 Assume the same facts as in Problem 24, except that the trust instrument allocates the capital gain to income. a. How much income is each beneficiary entitled to receive?b. What is the trust’s DNI?c. What is the trust’s taxable income?d. How much gross income is reported by each of the beneficiaries?

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Business Income Tax

19. LO. 1 Complete the following chart, indicating the comparative attributes of the typical simple trust and complex trust by answering yes/no or explaining the differences between the entities where appropriate. Attribute Simple Trust Complex TrustTrust could incur its own tax liability for the yearTrust generally distributes all of the DNITrust can deduct its charitable contributions in the year of or the year after paymentTrust could claim a foreign tax creditMaximum tax rate on net long-term capital gains = 20%Attribute Simple Trust Complex TrustAMT preferences and adjustments flow through to beneficiaries ratablyTrust can adopt the FIFO method for its inventory assets, the grantor had been using lower of cost or marketTrust can use a tax year other than the calendar yearAmount of personal exemption

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Business Income Tax

24. LO. 2, 3 The Allwardt Trust is a simple trust that correctly uses the calendar year for tax purposes. Its income beneficiaries (Lucy and Ethel) are entitled to the trust’s annual accounting income in shares of one-half each. For the current tax year, Allwardt reports the following. Ordinary income $100,000Long-term capital gains, allocable to corpus 30,000Trustee commission expense, allocable to corpus 5,000Use the format of Figure 28. 3 to address the following items. a. How much income is each beneficiary entitled to receive?b. What is the trust’s DNI?c. What is the trust’s taxable income?d. How much gross income is reported by each of the beneficiaries?25. LO. 2, 3 Assume the same facts as in Problem 24, except that the trust instrument allocates the capital gain to income. a. How much income is each beneficiary entitled to receive?b. What is the trust’s DNI?c. What is the trust’s taxable income?d. How much gross income is reported by each of the beneficiaries?19. LO. 1 Complete the following chart, indicating the comparative attributes of the typical simple trust and complex trust by answering yes/no or explaining the differences between the entities where appropriate. Attribute Simple Trust Complex TrustTrust could incur its own tax liability for the yearTrust generally distributes all of the DNITrust can deduct its charitable contributions in the year of or the year after paymentTrust could claim a foreign tax creditMaximum tax rate on net long-term capital gains = 20%Attribute Simple Trust Complex TrustAMT preferences and adjustments flow through to beneficiaries ratablyTrust can adopt the FIFO method for its inventory assets, the grantor had been using lower of cost or marketTrust can use a tax year other than the calendar yearAmount of personal exemption

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Business Income Tax

Business Income Tax

Business Income Tax Library Research Assignment

Mr. and Mrs. Ybarra, a retired couple in their late 70s, come in to meet with you. They are very friendly and living a comfortable retirement due, in large part, to the overall size of their estate (nearly $4 million dollars spread over multiple accounts) and their conservative asset allocation.

As you bring up the issue of estate planning, they thank you for your concern, but explain that it is already taken care of. They go on to explain that their attorney has prepared wills for both of them and all of their accounts are titled Jointly with Rights of Survivorship.

There are surprised, and a little confused, when you mention that their heirs might end up receiving only a fraction of those assets after the two of them pass away.

Include the following in your explanation to Mr. and Mrs. Ybarra:

The transfer-tax system
What is considered part of the estate
How much is excluded from taxation based on current legislation
Gross estate versus adjusted gross estate

Business Income Tax

Business Income Tax Library Research Assignment

Mr. and Mrs. Ybarra, a retired couple in their late 70s, come in to meet with you. They are very friendly and living a comfortable retirement due, in large part, to the overall size of their estate (nearly $4 million dollars spread over multiple accounts) and their conservative asset allocation.

As you bring up the issue of estate planning, they thank you for your concern, but explain that it is already taken care of. They go on to explain that their attorney has prepared wills for both of them and all of their accounts are titled Jointly with Rights of Survivorship.

There are surprised, and a little confused, when you mention that their heirs might end up receiving only a fraction of those assets after the two of them pass away.

Include the following in your explanation to Mr. and Mrs. Ybarra:

The transfer-tax system
What is considered part of the estate
How much is excluded from taxation based on current legislation
Gross estate versus adjusted gross estate