A Business Entity Recommendation : Mr. Jones Essay

2196 Words May 8th, 2016 9 Pages
A. Business Entity Recommendation
Mr. Bob Jones currently owns a used car dealership in Florida, which he elected to be a sole proprietorship. As a sole proprietor, the business net income derived on the Form 1040 Schedule C would be reported on Mr. Jones’ Form 1040. Mr. Jones is responsible for securing some form of limited liability insurance to protect his personal assets in cases involving insufficient funds and increasing debts. He also has an obligation to pay for self-employment taxes as well as Social Security and Medicare taxes. In the lieu of the new tax season, Mr. Jones is looking into either staying a sole proprietorship or electing one of the other business entities. If he decides on one of the other business entities, Mr. Jones is also considering allocating 40% of the business ownership to his daughter, Mandy. Upon careful consideration, it may be in the client’s best interest to change his election from a sole proprietorship to an S-corporation (Fishman 2016).
26 U.S. Code 1361 states that S-corporations function similarly to sole proprietorships as they are also flow-through entities. All business-related income and expenses are reported on an informational return and then allocated to the shareholder-employees based on ownership percentage. If Mr. Jones decides to incorporate an S-corporation, he is going to claim 60%, while his daughter is going to claim the remaining 40%. As a sole-proprietorship, he is a responsible for claiming all business-related…

Related Documents