Tax Planning Memo

Forming a business entity requires a great deal of knowledge before any decision is made. There are advantages and disadvantages to each entity and without proper understanding of what they are, individuals could make costly errors and forfeit crucial perks that would be in the businesses best interest. In the situation in New State, Alex, Bill, Carl, and Devon have inherited their father’s operating organic farm and seek advice, in regards to which form of business organization would best fit their particular criteria. They have emphasized their immediate concerns, wants and needs from a business standpoint, but also stress their strong faith to uphold and operate in accordance with the Christian worldview. Their criteria is as follows, (1) create an entity which averts formalities or complexities, (2) develop a structure allowing cousin Xavier to handle the day-to-day, (3) minimize taxes on the entity, (4) avoid any personal liability, (4) keep business in the family only, (5) remain in accordance with the Christian worldview, (which will be the final topic in this discussion). After reviewing all criteria, it will be advised that forming a limited liability company (LLC) and electing for an S corporation status would be of best interest for the family. Discussed below, is the strengths and weaknesses of each form of business organization as it applies to their unique situation, to help better understand why an LLC/S corporation, is the best form of

If this individual receiving all voting stock and then transfer to his children, he actually “control” the corporation and his children will have ability to “control” the corporation in fact. It will be qualified to recognize no gain or loss during the transaction.

The continuity of his company would be greater than his current sole proprietorship, by would be governed by his state laws. Without knowing the state he would be creating the LLC in, we can only state that he would be able to include options in the governing documents giving his family a change to buy his share if he does die, which would greatly disrupt the company’s operations. He

Rul. 70-104, 1970-1 C.B. 66 (1970), is that services from the consulting agreement by the father show a prohibited interest within §302(c)(2)(A)(i). The attribution to him would be terminated due to stock attribution rules of §318, which states that stock owned by family members individually may be reattributed to him through estate, trust, partnership or corporation of which he is a stockholder. Therefore the redemption does not qualify as a termination of his shareholder’s interest within the meaning of §302(b)(3) of the Code.

Issue e) What tax benefits would John realize if he invested $15,000 in Jane 's jewelry making?

The Carters meet the gross income test because their income is not taxed and is not included into their gross income. They both also qualify as a qualifying relative. Florence’s support provided by John and Janet is $4,500 for the year. This includes the $3,500 for the lodging and food and the $1,000 paid for her dental work. Calvin’s support is only $3,500 for the year for lodging and food. His life insurance premiums are exempt and cannot be figured as support. Florence and Calvin spent $4,000 of their own money for their support. Florence passes the support test, but Calvin does not. Therefore, Florence qualifies as a dependent exemption because she passed all three tests. Calvin on the other hand only passed two of the three tests and cannot be claimed as a dependent exemption.

Part V: Discuss how income and distributions may/will be allocated to Penelope, Mark and John. Profits are shared equally or by percentage ownership if that is how you divide the company ownership.

Beale, Randolph John, (2000) TC Memo 2000-158, RIA TC Memo ¶2000-158, 79 CCH TCM 2001

Peaceful Pastures Funeral Home Inc. is an accrual basis taxpayer who sells prepaid goods and services to clients that will be provided for them at the time of their death. Goods and services are refundable upon the purchasers request at any time until the contracts are fulfilled. Peaceful Pastures Funeral Home Incorporated is in need of determining the period of recognition for income provide from a prepaid service for which they are an accrual basis taxpayer.

If Dr. Green 's gambling activities do not qualify as a trade or business, can he deduct his gambling-related travel and lodging expenses against his gambling winnings?

The issue for decision is whether Walter Hodges is entitled under section §162 to deduct claims on his 2010 Schedule C, Profit or Loss from Business. Upon examination of Mr. Hodges tax return, the IRS disallowed Mr. Hodges Schedule C expenses because he failed to substantiate his expenses or to prove that they were "ordinary and necessary" to his business. Section §162(a) states that all the ordinary and necessary expenses paid or incurred during the taxable year in any trade shall be allowed as deductions. Section §162(a) specifies that such expenses must be directly connected with or pertain to the taxpayer's trade or business that is functioning as a business at the time the expenses were incurred. Furthermore, Walter Hodges largest expenditure was training classes for $25,000 which was an educational expense incurred to prepare for a new career as a real estate investor and renter rather than to maintain or improve skills in an ongoing business or career so it was not a deductible under section §162 (sect. 1.162.-5, Income Tax Reg.).

Maria and Jason, along with Robert and Elizabeth, must focus first on the initial setup of the organizational structure and the tax consequences on the corporation and individually before addressing the other factors of the organization, which are simple and easily addressed by discussing individual and group objectives. The first point to address is the IRC Section 351 limitation of 80% control of the corporation. Maria nor Jason are interested in decreases their control of the corporation and the best approach is for Robert and Elizabeth to contribute their proposed transactions and being taxed of on the gains at their marginal tax rate. Otherwise, it is best for Robert and Elizabeth to reevaluate their proposed transactions in order minimize the tax consequences. The IRC Section 351 limitation only pertains to an even exchange of property, weather property or cash, for corporate stock and 80% control of the corporation (IRC Section 351, n.d.).

Michala Smith is a single taxpayer, who was gifted a house and 10 acres in the rural area outside of Whitewater. She built a building and started a small country store/bakery on the property. She has made enough income from the store to support herself and save. Michala does not like the idea of paying taxes. She would like to know the best way to structure her sale to meet her goals, which include avoiding taxation and moving on to a different business, such as a bed and breakfast. We recommend that Michala take advantage of Section 121 when selling her home, so that can exclude $250,000 of the gain on the sale. We also recommend that she defers the gain on the sale of her business and land by exchanging it for a bed and breakfast, using

The immediate issue is to make a decision on the future of the family company.

Marathon runners take their very first step with a goal in mind: completing 26.2 miles. Swimmers have a goal in mind: complete the assigned number of laps in the shortest time possible. When you plan for your taxes, do you have a goal in mind? Here's a hint: your goals should not be the payment of taxes! Your goals should be to pay the fewest taxes legally possible. With that in mind, let's look at four ways to lower your tax bill.