method of accounting Bob will be only permitted to use the accrual method of

Method of accounting bob will be only permitted to

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method of accounting, Bob will be only permitted to use the accrual method of accounting for filing his income tax returns because he will be managing inventory in his new used car business. For that same reason, we recommend that the accounting and tax file be done using the accrual method of accounting. Bob’s business will be managing inventory and complex transactions due to the nature of the used car sales. If Bob ends up using cash basis of accounting for his business and files his income tax return using the accrual method, in order to comply with the IRS Code, he would have to convert his cash basis accounting into the accrual method by accumulating all the invoices due and all the estimated expenses corresponding to the year to be filed. Also, Bob will have to register all the income associated to the sales completed even though, the cash may not have been received yet. On the other hand, if Bob uses the accrual method of accounting for his day to day business and for this income tax return,
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adjustments to the financial statement won’t be necessary in order to comply with the IRS Code. Milestone Three: Choice of Business Entity I. Memorandum A. Recommend a type of business entity for the client to consider based on your tax research. Consider justifying your recommendation using the code and regulations that relate to the business entity. There are four types of business entities Bob can choose from. The 26 US Code defines the following four types of businesses as described below: Sole Proprietorship – A sole proprietorship is someone who owns an unincorporated business by himself or herself. It is not considered a separate legal entity. Sole proprietorships are subject to single level taxation. As stated above, a sole proprietorship is not a legal entity; it refers to a person who owns the business and is personally responsible for its debts. In this case, a sole proprietorship would not be an option for Bob since he want to share his business with his daughter. Partnerships – A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. Each
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partner includes his or her share of the partnership’s income or loss on his or her tax return. The main disadvantages of opening a partnership is that the partners are liable for their actions and the actions of their partners, the partnership has a limited life (it might end upon the withdrawal or death of a partner), and a partnership usually have limitations that keep it from becoming a large business. I do not think this option is viable for Bob’s new business because all the partner’s personal assets
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  • Winter '15
  • rylandmahathey
  • Accounting, Business, Taxation in the United States

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