1 Aneley Azcuy-Pita 01/21/2018 Final Project: Memorandum with Appendix I recommend for Bob to go with a S corporation. Under this corporation the client will have various tax benefits and provide the business owners with the liability protection for a corporation. As an S corporation, all income or losses received can be transferable to shareholders and could be reported on individual tax returns. However, when it comes to Bob there will be no need to worry about the tax burden or losses that could happened in the business. Good benefit is the company will have a 10% growth in the entire income returns. When it comes to an S corporation, Bob is advised to use the cash method of accounting on his form of business because it much simpler than the accrual accounting method. According to the IRS Publication 334, u nder the cash accounting method, all income is taxable when its received and expenses deductions are paid. According to recent tax law and regulation change led to the development of the “Small Business Job Protection Act of 1996”. This act made modifications to S Corporation regulation,” rules surrounding safe harbor provisions and rules governing worker employment status” (Job Protection Act Of 1996). It made S corporation to be more attractive toward business owners and investors. This act allows S corporation to have more shareholders in the business than before the tax law of 1996 by increasing the number to 75. The more shareholders allow gave the opportunity to business to increase additional capital. On the other hand, according to IRS Publication 538, the accrual method of accounting generates income report for the year where earned and deducted or capitalized expenses were incurred. Good advantage under this accrual method as a recommendation for Bob business is that provide a much complex long term realistic idea of income and expenses of the business whereas cash method does not provide.
2 Aneley Azcuy-Pita 01/21/2018 S corporation have some disadvantage regarding the tax benefits and limited liability protection. These disadvantages have many requirements which can apply toward higher legal regulation and tax service costs. The article of incorporation and hold shareholders meetings would need to be file as accordingly. All S corporation legal cost and accounting services equals to the standard corporation costs [Wil17]. Furthermore, tax preparations cost is much lower for S corporation compare to the C corporation. S corporations normally need to filet once a year as C corporation will need to file quarterly. The benefit for S corporation when it comes to tax and limited liability is that the corporation passes all income, deductions and losses to their shareholders for income tax purposes. Shareholders in S corporation can flow their income and losses report to their own personal tax returns. An S corporation is responsible for gains and income within the business.
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- Fall '17
- Business, Corporation, Taxation in the United States