Explore BrainMass
Share

Taxes, liability and administration

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

You and a friend are considering forming a business organization to manufacture and sell widgets. You suspect that the company will show a loss during the first two years of operation. You also know that another manufacturer of widgets has suffered three product liability lawsuits totaling $300,000 within the past year. Additionally, you are married to a doctor who makes a very high annual income.

What form of business organizations should be selected under the circumstances? Fully explain why you selected this form?

Discuss: taxes, liability and administration.

© BrainMass Inc. brainmass.com October 25, 2018, 12:12 am ad1c9bdddf
https://brainmass.com/business/accounting/taxes-liability-administration-220285

Solution Preview

I would open a Limited Liability Partnership with myself being a limited partner.

Tax Implications: The LLP will not be taxed. All profit and losses will flow through me and I would be taxed at an individual level. Since the LLP is expected to suffer losses in the first two years, I would benefit from these losses. Since my spouse is a doctor with a high income, these losses will reduce my total income ...

Solution Summary

The solution goes into a great amount of detail about the tax and liability implications of the different business structures. The solution also recommends the ideal business structure for the situation given in the questions. Overall, an excellent response.

$2.19
See Also This Related BrainMass Solution

Calculation of Gift Tax. In 2010, Sondra makes taxable gifts aggregating $300,000. Her only other taxable gifts amount to $200,000, all of which she made in 1997.
a. What is Sondra's 2010 gift tax liability?
b. What is her 2010 gift tax liability under the assumption that she made the $200,000 of taxable gifts in 1974 instead of 1997?

2. Validation. Mary died on April, 3, 2009. As of this date, Mary's gross estate was valued at $4.5 million. On October 3, Mary's gross estate was valued at $3.8 million. The estate neither distributed nor sold any assets before October 3, 2009. Mary's estate had no deductions or adjusted taxable gifts. What was Mary's lowest possible estate tax liability?

3. Determination of Taxable Income. A simple trust has the following receipts and expenditures for the current year. The long-term capital gain and trustee's fees are part of principal.

Dividends $20,000
Long-term capital gain 15,000
Trustee's fees 1,500
Distribution of beneficiary 20,000

a. What is the trust's taxable income under the formula approach? (See Below)
b. What is the trust's taxable income under the short-cut approach?

Formula: For individuals, miscellaneous itemized deductions are deductible only to the extent the aggregate amount of such deductions exceeds 2% of the taxpayer's AGI. Estates and trusts do not literally have AGI, but Sec. 67(e) provides that a hypothetical AGI amount for an estate or trust is determined in the same fashion as for an individual except that (1) expenses paid or incurred in connection with the administration of the estate or trust that would not have been incurred if the property were not held in such trust or estate, (2) the personal exemption, and (3) the distribution deduction are treated as deductible for hypothetical AGI.

1. Calculation of Gift Tax. In 2010, Sondra makes taxable gifts aggregating $300,000. Her only other taxable gifts amount to $200,000, all of which she made in 1997.
a. What is Sondra's 2010 gift tax liability?
b. What is her 2010 gift tax liability under the assumption that she made the $200,000 of taxable gifts in 1974 instead of 1997?

2. Validation. Mary died on April, 3, 2009. As of this date, Mary's gross estate was valued at $4.5 million. On October 3, Mary's gross estate was valued at $3.8 million. The estate neither distributed nor sold any assets before October 3, 2009. Mary's estate had no deductions or adjusted taxable gifts. What was Mary's lowest possible estate tax liability?

3. Determination of Taxable Income. A simple trust has the following receipts and expenditures for the current year. The long-term capital gain and trustee's fees are part of principal.

Dividends $20,000
Long-term capital gain 15,000
Trustee's fees 1,500
Distribution of beneficiary 20,000

a. What is the trust's taxable income under the formula approach? (See Below)
b. What is the trust's taxable income under the short-cut approach?

Formula: For individuals, miscellaneous itemized deductions are deductible only to the extent the aggregate amount of such deductions exceeds 2% of the taxpayer's AGI. Estates and trusts do not literally have AGI, but Sec. 67(e) provides that a hypothetical AGI amount for an estate or trust is determined in the same fashion as for an individual except that (1) expenses paid or incurred in connection with the administration of the estate or trust that would not have been incurred if the property were not held in such trust or estate, (2) the personal exemption, and (3) the distribution deduction are treated as deductible for hypothetical AGI.

View Full Posting Details