But bob will still get a sizable gain on his

$8,550,000 due to general selling factors like realtors cut, surveying, appraisals, etc., but Bob
will still get a sizable gain on his investment.
With Bob purchasing the land in 1966 it falls into the tax category of “long-term capital
gain” (Section 1222 (3)). This distinction of long-term over short-term is important for tax
bracket purposes. Long-term capital gains only get taxed at levels of 0%, 15%, or 20%. While
short-term gains get counted toward individual income and will be taxed at that level. (Boyte-
White, 2018)
Salary or Cash Distribution
With the funding for Bob’s new dealership discussed, it is time to think about how Bob may
want to receive his pay. With Bob’s pay it can either be done by cash distribution or salary. Each
form of funding has their own set of advantages and disadvantages depending on the corporation
Bob picks for the business (C corp. vs S corp.)
If Bob has the car dealership become a S corporation, as defined by Section 1361, then he
would want to receive a cash distribution. S corporations have the benefit of being a “pass
through entity” (pass through meaning profits, losses, etc. going through the shareholders)
allowing the cash distributions to only be taxed once compared to a C corporation.
If Bob has the dealership become a C corporation, then it would be in his best interest to
take a salary. With a C corporation Bob would have to pay taxes on the cash distribution on the
company side and on his personal side. While, if he received a salary then he would only have to
be paying payroll taxes compared to the double taxation.

TAX 650 FINAL PROJECT
10
Appendix
Form 1040.pdf
1040 Schedule D.pdf

TAX 650 FINAL PROJECT
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1040 Schedule B.pdf
Form 8949.pdf
References
26 U.S. Code § 168 - Accelerated cost recovery system Retrieved July 1 st , 2018 from

TAX 650 FINAL PROJECT
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26 U.S. Code § 179 - Election to expense certain depreciable business assets Retrieved July 1 st ,
2018 from
26 U.S. Code § 446 - General rule for methods of accounting Retrieved July 1
st
, 2018 from
26 U.S. Code § 448 - Limitation on use of cash method of accounting Retrieved July 1 st , 2018
from
26 CFR 1.446-1 (c)(2)(i) - General rule for methods of accounting . Retrieved July 1 st , 2018
from
26 U.S. Code § 1001 - Determination of amount of and recognition of gain or loss Retrieved July
1
st
, 2018 from
26 U.S. Code § 1012 - Basis of property—cost Retrieved July 1 st , 2018 from
26 U.S. Code § 1222 - Other terms relating to capital gains and losses Retrieved July 1 st , 2018
from
26 U.S. Code § 1361 - S corporation defined Retrieved July 1
st
, 2018 from
Boyte-White, Claire (March, 2018) Comparing Long-Term vs. Short-Term Capital Gains Tax
Rates Retrieved July 1
st
, 2018 from -
finance/101515/comparing-longterm-vs-shortterm-capital-gain-tax-rates.asp
26 CFR 601.602 (n.d.)