Tax Part 1 of 3 650 Final Project-S Corp Election for Bob Jones 22 pages oct 2019.docx

Tax 650 Final Project: S-corporation Election for Bob Jones Automotive Gallery 1
S-corporation Tax Election for Bob Jones Automotive Gallery
Southern New Hampshire University

Tax 650 Final Project: S-corporation Election for Bob Jones Automotive Gallery 2
S-corporation Tax Election for Bob Jones Automotive Gallery
Memorandum
To: Bob Jones
From: Kelly Rios
Subject: Recommendation for Business Selection Tax Entity
Business Tax ID: 41-0000000
Date: 29 Sept 2019
Mr. Jones,
We are writing to inform you that we recommend the S-corporation election for your
business tax needs based on your total assets and personal wealth of $14,716,000.00. A
Subchapter S corporation is a modified conduit through which, in general, the corporation's
taxable income, net operating loss, certain long term capital gains, and certain credits, such as the
investment credit, are passed to the shareholders (140. INT. REV. CODE of 1954, § 1374).
Provided, as discussed on September 27, 2019, Table 1 below shows your overall total assets and
personal wealth:
Table 1: Client’s Current Personal Wealth
Personal Wealth Amount
Reported Interest Income $ 20,000.00
Land Sold $ 9,000,000.00
Investment, Stocks, and bonds, $ 5,000,000.00
Dividend Income $ 6,000.00
401(K) $ 690,000.00
Total Current Personal Wealth $ 14,716,000.00
Based on your financial information and your business needs, it was found that an S-
corporation best suits business owners such as yourself; seeking strong personal liability

Tax 650 Final Project: S-corporation Election for Bob Jones Automotive Gallery 3
protection but also prefer to pass off loses and profits through your personal tax return. We
reviewed several other tax election options for you such as sole proprietor and another
corporation tax election, C-corporation.
Sole Proprietor have some advantages such as easy business start-up, profits are owned
by the business owner only. However, with your assets and tax needs, it was found to be a
disadvantage to you because you will not save on your taxes due to a sole proprietor being taxed
individual and you are not able to operate as a pass through entity. Sole proprietor election
provides limited management, unlimited liability, and the life of the business is limited.
In analyzing business tax elections for your company, a C-corporation election was
considered as a choice for your business taxes. However, due to being a new, first time business
owner, it was found that a C-corporation will not currently be in your favor. Later, if you prefer,
you are more than welcome to convert to a C-corporation, that is, if you would like to hold more
than 100 shareholders.
In the meantime, we must share the pros and cons of a C-corporation tax election. The
advantages of a C-corporation is that it provides limited liability, worthlessness of investment of
capital loss of remainder basis may qualify for §1244 ordinary loss treatment, and as an owner of
a C-corporation, you will have fringe benefit programs such as health insurance, group life
insurance, group disability insurance, and dependent care assistance programs that are tax
deductible. On the other hand, the disadvantages of C-corporation is that the start-up and