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Please quality and thorough answer. Thanks You are currently working at a mid-sized certified public accounting...

Please quality and thorough answer. Thanks

You are currently working at a mid-sized certified public accounting firm. Your client is Bob Jones. Bob, age 60 and single, has recently retired from IBM. He has $690,000 available in his 401(k) fund and he is thinking of using that money to open a used car business that will be located at 210 Ocean View Drive in Pensacola, Florida. Bob has estimated that the business might make $300,000 in taxable income. Bob’s personal wealth including investments in land, stocks, and bonds is about $14,000,000. He reported an interest income of $20,000 and dividend income of $6,000 last year. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for $450,000. Bob has hired your firm for professional advice regarding whether he should operate as a sole proprietor, a partnership, an S corporation, or a C corporation. He is also considering transferring a possible 40% interest in his new business to his daughter Mandy, age 23 and single.  

Required:

A. Calculate the property disposition capital gains and taxation of gross income.

B. Identify the tax consequences on the sale or exchange of the land consistent with capital gain rules. Consider the selling expense, broker’s fees, closing costs, appraisals, and surveys and the correct schedule form to complete.

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Answer #1

A. Bob's personal wealth = $14,000,000 (Land worth $9,000,000) + Stocks and Bonds + $20,000

= $14,020,000

=Total property- Investment made

=14,020,000 - $450,000

= 13,570,000

- Property disposition capital gain and taxation of gross income.

Taxation on Capital Gain = 13570000 * 20%

= $2,714,000

Note: A tax-deferred 401(k), have no effect on your taxable income they are subtracted from your paycheck. this means you are effectively paying taxes as you contribute, so you wont have to pay taxes on the funds when you withdraw.

B. The long-term capital gains are taxed at a lower rate than other income, and if you have a loss on the property, you can deduct it. The bad news is that you may have ordinary income as a result of expensing or depreciation. And, you may find yourself subject to the 3.8 percent tax on net investment income.

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Answer #2

A. Bob's personal wealth = $14,000,000 (Land worth $9,000,000) + Stocks and Bonds + $20,000

= $14,020,000

=Total property- Investment made

=14,020,000 - $450,000

= 13,570,000

- Property disposition capital gain and taxation of gross income.

Taxation on Capital Gain = 13570000 * 20%

= $2,714,000

Note: A tax-deferred 401(k), have no effect on your taxable income they are subtracted from your paycheck. this means you are effectively paying taxes as you contribute, so you wont have to pay taxes on the funds when you withdraw.

B. The long-term capital gains are taxed at a lower rate than other income, and if you have a loss on the property, you can deduct it. The bad news is that you may have ordinary income as a result of expensing or depreciation. And, you may find yourself subject to the 3.8 percent tax on net investment income.

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