Individual Income Taxes
Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 19, Problem 1RP
To determine

Advise Person C and Person C’s wife about the strategy.

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Amy and Jeff Barnes are going to operate their florist shop as a partnership or as an S corporation. After paying salaries of $45,000 to each of the owners, the shop’s earnings are projected to be about $60,000. The earnings are to be invested in the growth of the business. What would you advise them as to which of the two entity forms they should select.
Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $46,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $4,200 and a building he bought as a storefront for the motorcycles. The building has an FMV of $41,000 and an adjusted basis of $26,000 and is secured by a $31,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest? Multiple Choice O $38,500 O $40,200 O $33,500 $35,200
Allen, Barry, and Carl are incorporating their real estate sales partnership, which will become the ABC Corporation. Allen will contribute a building with a basis of $25,000 and a fair market value of $50,000 in return for 500 shares. Barry and Carl will each contribute $50,000 cash for 500 shares each. To retain the services of their top sales associate, Drake, they will provide 500 shares to him in return for his services. Explain the tax consequences of these transactions for each shareholder, and the corporation.
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