Please read carefully what is required and answer all thesections. if you cannot solve, leave to someone who can.Thanks.
You are currently working at a mid-sized certified publicaccounting firm. Your client is Bob Jones. Bob, age 60 and single,has recently retired from IBM. He has $690,000 available in his401(k) fund and he is thinking of using that money to open a usedcar business that will be located at 210 Ocean View Drive inPensacola, Florida. Bob has estimated that the business might make$300,000 in taxable income. Bob’s personal wealth includinginvestments in land, stocks, and bonds is about $14,000,000. Hereported an interest income of $20,000 and dividend income of$6,000 last year. The $14,000,000 includes land worth $9,000,000that Bob bought in 1966 for $450,000. He is also consideringtransferring a possible 40% interest in his new business to hisdaughter Mandy, age 23 and single.
Required:
A. Prepare a detailed calculation of the capital gain and incometax supported and explained with authority from the tax code. Usethe Capital Gains Tax Worksheet to calculate Bob's income tax. I amlooking for a step by step calculation and explanation of the longterm capital gain, income tax, and after-tax proceeds from the saleof Bob's land. Also, please note the long term capitalgains tax rate is 20% and there is a 3.8% tax on net investmentincome that applies.
B. Identify the tax consequences on the sale or exchange of theland consistent with capital gain rules. Consider the sellingexpense, broker’s fees, closing costs, appraisals, and surveys andthe correct schedule form to complete.
C. Describe the after tax effects on the client’s cash flowbased on the sale of the land that is needed to provide the fundsnecessary to start the business. Consider including capital gainstax rules.
D. Explain whether or not the client and his child should take asalary or cash distribution according to tax purposes and InternalRevenue Code and Treasury regulations. Consider the type ofbusiness which is an S Corporation and the tax effect whether it issalary, dividends, or cash withdrawal. Looking for a summarydiscussion of the income tax consequences to Bob and to hisbusiness of taking a salary vs. a cash distribution
