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Tax planning for Monique's business expansion

Monique is planning to increase the size of the manufacturing business that she operates as a sole proprietorship. She has a number of older assets that she will replace as part of the expansion. In addition, to finance this expansion she will have to sell some of her personal assets. Because it is close to the end of the tax year, she can time the sales of the assets to take the greatest advantage of the tax laws. Monique is currently in the 35 percent tax bracket.

Following are the assets that Monique plans to sell; assume that she will realize their fair market value on the sales:

In addition to the proceeds from the sales of the business assets, Monique needs a minimum of an additional $800,000 for her planned expansion. What assets should Monique sell to minimize her tax liability on the sales of the business and personal assets?

See attached file for full problem description.

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Solution Preview

First the tax implications of the sales:
Business 1 $3000 - 0 = $3000 gain; 1245 property taxed at ordinary rates x 35% = $1,050
Business 2 $300,000 - 160,000 = $140,000 gain; 1250 property taxed at capital gain rate x 20% = $28,000
Business 3 $10,000 - 25,000 = $15,000 loss; 1245 property at ordinary rates x 35% = ($5,250) tax savings
Business 4 $60,000 - 55,000 = $5,000 gain; 1245 property at ordinary rates x 35% = $1,750

Personal 1 $400,000 - 260,000 = $140,000 gain taxed at collectible capital gain rate of 28% = $39,200
Personal 2 $400,000 - 525,000 =$125,000 loss taxed at ...

Solution Summary

The solution lists the steps required for the tax planning to help Monique generate the funds for her expansion project. It is over 400 words of explanation to get through the steps to explain the options for a solution.