Benton Company Case Study

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Chapter 2 Problems 33. Assumption A: If the company were a sole proprietorship, all operating income and expenses on Schedule C of an individual return. The long term capital gain would be taxed on the individual return as well, at a maximum rate of 15%. Assumption B: If the company were a corporation, income and expenses would be taxed at the corporate level and reported on Form 1120. No special tax rates for capital gains apply to corporations, the entire gain is included in income subject to normal corporate rates. None of these amounts would be reported on her individual return. 36. A. An S-Corp: S-corporations allocate entity income to shareholders, where it is then reported on their individual returns. Therefore, as the sole-shareholder,…show more content…
If BC continues to operate as a sole proprietorship with the expected income and expenses, the business income and expenses would be included on your personal return and taxed at the 35% rate, resulting in $56,000 income taxes owed. If BC were incorporated and paid out 70,000 to yourself, this would result in corporate income taxes owed of $18,850. As you can see, a considerable tax savings is available if BC is taxed at the corporate level, rather than on your individual…show more content…
Joseph Thompson Jay Corporation 1442 Main Street Freeport, ME 04032 Mr. Thompson, In regard to the items you are considering donating to charity, I have ranked them in order of the most advantageous to the least advantages from a tax perspective. 1. Maize stock 2. Cash 3. Brown Stock 4. Unimproved Land A charitable gift of property results in a deduction of the property's FMV. Therefore, contributing loss property (where FMV < basis) such as the unimproved land, should be avoided since the loss would never be recognized. For a more favorable tax result, a good option would be to sell the property at a loss, and then donate the proceeds to charity. The Maize stock would result in a long term capital gain property deduction of 200,000, the stock's FMV, and the recognition of the associated gain could be avoided. The Brown stock is considered ordinary income since if it were sold on the contribution date, a short-term capital gain would have been recognized (due to the holding period). Therefore, the deduction is limited to the FMV less the amount that would've been a STCG ($130,000), which is essentially the basis, $70,000) A cash donation would be deducted in full,

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