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Ownership Interest: Bob, I am recommending you to form a corporation and file for S election, as you would own 60% of the stock and since you are considering awarding 40% interest to your daughter, her share would be as a 40% shareholder. The S corporation would have an unlimited life, and capital could be raised much easier, than a sole proprietorship or a partnership. The S corporation provides for limited liability protection, pass through taxation as I have stated, credibility, pro-rata distribution of profits, lower audit risk, tax deductible expenses, and an S corporation can offer self-employment tax savings, since owners who work for the business are classified as employees. Your used automobile dealership cannot be a sole proprietorship if you plans to transfer 40% interest to Mandy. You could create a limited liability(LLC) partnership, however, there is limited flexibility in transferring ownership, unlike in a 9 | P a g e
Final Projectcorporation. Bob, you could include transferability to members in the LLC operating agreement.The LLC partnership life in Florida is not unlimited as is an S corporation. LLC requirements have certain steps that must be undertaken on an ongoing basis in order to keep the business in compliance. One needs to consider that there is minimal case law protection, as the LLC is a newer business structure (Anderson, Pope, & Rupert, 2016.) I believe Bob, at your age, and having already retired from IBM, I think it would be a great advantage for you to have your daughter involved in the business, as it will eventually be left to her, as we have discussed. Therefore, 40% interest, would give her a great incentive to make the business profitable, as it will one day be her company.Cash or Accrual Basis Accounting System: 26 U.S. Code § 446states that taxable income may be computed under the accounting method that the business regularly computes his income in keeping his books. As I have stated previously, I believe that revenue recognition would best meet your business needs under the accrual basis, and the expense recognition would be used to allow for matching revenue earned in a given period to expenses incurred in a given period. My recommendation has been an S corporation entity, and I believe that 26 U.S. Code § 1366 provides that the shareholders tax liability; items of income, loss, deduction, etc. would be passed through to the shareholder on the stock basis of the shareholder. The stock basis is a fair method between you and your daughter as to the distribution of such income and loss. As you choose to minimize your work efforts in the business, you may pass your shares to your daughter, thereby increasing her stock basis. Tax Effects on Cash Flow: 26 U.S.C. § 1001states that the gain from the sale of the property shall be the excess of the amount realized over the adjusted basis, taking into consideration of costs incurred to sale the property. The land was purchased in 1966 for 10 | P a g e
Final Project$450,000, and is for FMV; $9,000,000. The LTCG is $8,550,000, however, Bob, you will have topay LTCG taxes at the rate of 39.6%. You will receive form 1099-S which will report the