Question

Ben, Jason, and Kelly are planning on forming a business together.   The business will begin as of 1/1/19 (assets transferred as of this day). They plan on transferring the following assets to the business:

Asset               Original Cost     FMV      Date of Acquisition     Liabilities

Ben:                 Computer        $15,000              $11,000           1/1/16                      $0

                        Cash                14,000

Jason:             Car                  $30,000              $25,000           1/1/17                      $20,000

                        Cash                20,000

Kelly:              Office Furn.    $40,000              $25,000           1/1/18                      $0

(Note – You have to figure the adjusted basis in the assets. You should assume that each asset was depreciated under MACRS)

In exchange for the assets, each individual will receive a 1/3^rd ownership interest in the entity. The business will obtain an $80,000 bank loan for working capital needs.

The business will be in retail sales over the Internet. They expect the following income and expense items (not counting depreciation which you are to figure).

Sales                            $300,000

COGS                         100,000

Interest Income                5,000

Salaries & Wages          40,000

Repairs & Maint              8,000

Rent                                30,000

Interest Expense             12,000

Charitable Cont.              30,000

The entity distributes $20,000 to each individual.

1. Using this information, they would like you to prepare proforma tax returns for the entity doing business as a C corporation, S corporation and a LLC with partnership tax status (assume a calendar year for each entity). For purposes of the LLC, assume the “members” are treated as general partners for purposes of determining any self-employment tax.

2.) Prepare a FMV and a tax basis balance sheet immediately following the contribution of the assets.

3. Prepare a tax return for one of the individuals. You can assume they are each single.

4. Ben expects to sell his interest in the business three years from now. He expects to sell his interest for $300,000. The income and expense items are expected to be exactly the same for the next three years (except for the amount of depreciation). What will be the tax implications of this sale under each form of entity (assume the entity still has the $80,000 loan and the other loan is paid off)?

Answer 1

time wasn´t enough to complete all the requirements. hope this is usefuldepreciation calculation

ASSETS	ORIGINAL COST	DATE OF ACQUISITION	DATE OF TRANSFERENCE	RECOVERY PERIOD	LIABILITY	1/1/2017	1/1/2018	1/1/2019	TOTAL ACCUMULATED DEPRECIATION	ADJUSTED BASIS 1/1/19
COMPUTER	15,000.00	1/1/2016	1/1/2019	5 YEARS		3,000.00	4,800.00	2,880.00	10,680.00	4,320.00
CAR	30,000.00	1/1/2017	1/1/2019	5 YEARS	20,000.00	X	6,000.00	9,600.00	15,600.00	14,400.00
OFFICE FURNITURE	40,000.00	1/1/2018	1/1/2019	7 YEARS		X	X	5,716.00	5,716.00	34,284.00
									31,996.00

U.S. Corporation Income Tax Return 1120 OMB No. 1545-0123 Form Departmant of the Treasury Intenal Revenus Sarvice For calendar year 2018 or tax year beginning 2018 20 u 18, ending www ww Go to www.irs.gov/Form1120 for instructions and the latest information B Employer identification number Name A Check it 1a Consolidatad rum (tach Form 851) b Linonile consoli- datad rum 2 Parsonal holding co. (tach Sch. PH 3 Personal service corp (ainatructional TYPE OR PRINT Number, street, and room or suite no. If a P.O. bax, see instrucions. C Date incorporated D Total assets (see instructions) City or town, state or province, country, and ZP or foreign postal code E Check if (1) (3 Name change 4 Schedule M-3 ached Address change Initial ratum (2) Final retum (4) 300000 1a Gross receipts or sales 1a b Returns and allowances 1h Balance. Subtract line 1b from line 1a 1c 300000 c 2 Cost of goods sold (attach Form 1125-A) 2 100000 3 Gross profit. Subtract line 2 from line 1c 3 200000 4 Dividends and inclusions (Schedule C, line 23, column (a) 4 60000 5 Interest 5 5000 6 Gross rents 6 Gross royalties 8 Capital gain net income (attach Schedule D (Form 1120 8 Net gain or loss) from Form 4797, Part II, line 17 (attach Form 4797) 9 Other income (see instructions-attach statement) Total income, Add ines 3 through 10 Compensation of officers (see instructions-attach Form 1125-E) 10 10 11 11 265000 12 12 13 Salaries and wages (ess employment credits) Repairs and maintenance Bad debts 13 40000 14 14 8000 15 15 30000 16 Rents 16 17 Taxes and licenses 17 Interest (see instructions) 12000 18 18 30000 19 Charitable contributions 19 31996 20 Depreciation from Form 4582 not claimed on Form 1125-A or elsewhere on return (attach Form 4562) Depletion 20 21 21 22 Advertising Pension, profit-sharing, et., plans Employee benefit programs Reserved for future use 22 23 23 24 24 25 25 26 Other deductions (attach statement 26 Total deductions. Add lines 12 through 26. 151996 27 27 113004 28 Taxable income before net operating loss deduction and special deductions. Subtract line 27 from line 11 28 Net operating loss deduction (see instructions) Special deductions (Schedule C, line 24, column (c 29a 29a b 29b Add lines 29a and 29b 29c 30 Taxable income. Subtract line 29c from line 28. See instructions 30 31 Total tax (Schedule J, Part I, ine 11) 31 32 2018 net 985 tax liability paid (Schedule J, Part I, line 12) 32 Total payments, credits, and section 965 net tax liability (Schedule J, Part IlII line 23) 33 33 34 Estimated tax penalty. See instructions. Check if Form 2220 is attached 34 35 Amount owed. If line 33 is smaller than the tatal of lines 31,32, and 34, enter amount owed 35 36 36 Overpayment. If line 33 is larger than the total of ines 31, 32, and 34, enter amount overpaid Refunded 37 Enter amount from line 38 you want: Credited to 2019 estimated tax 37 Under panaties of parury, I declare that I have xamined this eturn, including accomparnying schedulas and statements and to the beat of my knowledge and beiet, it in true, comact, and complete Declaration of preparer jothar than taxpaye) based on all information af which preparer ha any knowledga. Sign. Tax Rehundable Credts, and Deductions (See instructions for limitations an deductions.) Income

U.S. Return of Partnership Income 1065 OMB No. 1545-0123 Fam 2018 For calendr year 2018, or tax year beginning 2018, ending 20 Departmant of the Treasury Inbamal Revenu Service Go to www.irs.gov/Form 1065 for instructions and the latest information Name of partnarship Principal business activity A D Employer identiication number BPrincipal product or ervice Type E Date business started Numbar, straet, and room or sute no. If a P.O. box, sea itructions or City ar town, sta or province, courty, and ZiP or farign pastal code Print C Buainss code number F Total assts (se instructions Check applicable boxes: Address change (5 Inital ratum (2) Final retun (3) Name change (4) Other (specify) G Amended retum (2) Accrual Cash H Check accounting method: (1) (3) Number of Schedules K-1. Attach one for each parson who was a partner at any time during the tax year. I J Check if Schedules C and M-3 are attached Caution: Include only trade or business income and expenses on lines 1a through 22 below. See instructions for more information. 1a Gross receipts or sales 300000 1a b Retums and allowances 1b Balance, Subtract line 1b from line 1a. 300000 1c c 100000 Cost of goods sold (attach Form 1125-A) Gross profit. Subtract line 2 from line 1c 2 3 3 200000 4 Ordinary income (oss) from other partnerships, estates, and trusts (attach statement) Net fam profit (oss) (attach Schedule F (Form 1040 6 4 5 Net gain loss) from Form 4797, Part IL, line 17 (attach Form 4797) 6 7 Other income (loss) (attach statement) Total income (loss). Combine lines 3 through 7 Salaries and wages (other than to partners) (ess employment credits) Guaranteed payments to partners Repairs and maintenance Bad debts. Rent 7 5000 8 8 205000 40000 9 10 10 11 11 8000 12 12 30000 13 13 14 Taxes and licenses 14 15 Interest (see instructions) Depreciation (if required, attach Form 4562) Less depreciation reported on Form 1125-A and elsewhere on retun 16b Depletion (Do not deduct oil and gas depletion.) Retirement plans, etc. Employee benefit programs Other deductions (attach statement) Total deductions. Add the amounts shown in the far right column for lines 9 through 20 Ordinary business income (loss). Subtract line 21 from line 8 15 12000 31996 16a 16a b 16c 31996 17 17 18 18 19 19 20 20 21 21 121996 22 22 83004 23 Interest due under the look-back method-completed long-term contracts (attach Form 8697) 23 24 Interest due under the look-back method-income forecast methad (attach Form 8868) BBA AAR imputed underpayment (see instructions) Other taxes (see instructions) Total balance due. Add lines 23 through 27 Payment (see instructions) Amount owed. If line 28 is smaller than line 27, enter amount owed 24 25 25 26 26 27 28 28 29 29 30 Overpayment. If line 28 is larger than line 27, enter overpayment Undar paralties of parjury, I daciare that I have xaminad this nurn including accompanying schedules and statementa and to the beat of my knowedge and beli atrue, eact and complete. Declaration of praparer jother than partner or limited ability company mamber) is based an all information of which preparer has any knowledga. 30 Sign Here May he 89 decus is uwhthe pregarr n owS DRGtans Yor Tax and Payment Deduc tion s eistructioans for limitata Income