Gloria Deal's Advanced Tax Corporate Unit 2 Project Question

Gloria Deal's Advanced Tax Corporate Unit 2 Project...

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Week 2 1. Discussion Question    C: 2-1   What entities or business forms are available for a new business? Explain the advantages and disadvantagesof each. A new business can be conducted as any of the following a sole proprietorship, partnership, C corporation, S corporation, LLC, or LLP. Each of the form's have tax and nontax advantages as well as disadvantages can be located on pages C: 2-2 through C: 2-7. The textbook then goes into comparison's of the C corporation, S corporation, and partnership's alternative business forms that appear in the textbook's Appendix F on pages C: 2-2 through C: 2-8. C: 2-2  Alice and Bill plan to go into business together. They anticipate losses in the first two or three years, which they would like to use to offset income from other sources. They also are concerned about exposing their personal assets to business liabilities. Advise Alice and Bill as to what business form would best meet their needs. Alice and Bill should consider forming the corporation into an S corporation election. The S corporation election will permit losses that are incurred during the first few years to be passed through onto Alice and Bill and then be used to offset income from other sources. Which then thecorporate form allows both of them limited liability. As an alternative to incorporating, Alice and Bill might consider a limited liability company that is taxed as a partnership and this information can be located on pages C: 2-6 through C: 2-8. C: 2-9  How is “control” defined for purposes of Sec.351(a)? For this control requires that the group of transferrers own at least 80% of the total combined voting power forf all classes of stock entitled to vote and is at least 80% of the total number of shares of all other classes of stock. The nonvoting stock ownership is then tested on a class-by-class basis. This information can be located on pages C:2-13 through C: 2-16 of our textbook. C: 2-21  What are the advantages and disadvantages of using debt in a firm’s capital structure? When using the debt some of the advantages include: interest is deductible by the payer where as a dividend payment is not deductible, therefore the repayment of an indebtedness is generally treated as a return of capital while a stock redemption is generally treated as a dividends-received deduction when it is received by a corporate shareholder. The stock's can be received tax-free as part of a corporate formation and/or reorganization whereas the receipt of debt is usually treated as boot; a distribution of stock to shareholders can be a tax-free stock dividend while a distribution of an indebtedness usually results in dividend income; and
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This note was uploaded on 10/04/2011 for the course ACCOUNTING AC 430 taught by Professor Johndavis during the Spring '09 term at Kaplan University.

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Gloria Deal's Advanced Tax Corporate Unit 2 Project...

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