$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 11 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 12 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.)
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- Fall '17
- Taxation in the United States