Company and Tax Treatment Analysis

 Limited Liability Company and Tax Treatment Analysis

Instructions/Descriptions

 Limited Liability Company and Tax Treatment Analysis

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In today’s business environment, it is very popular to structure a business entity as a Limited Liability Company (LLC). Sole proprietorships and partnerships may utilize this legal structure. An LLC may be taxed in different ways depending on the election made on the Form 8832 Entity Classification Election.

Using a minimum of 450 words, explain what an LLC is and some of the advantages of this business form.

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Discuss how an LLC is taxed when there is a single member and when there are multiple members, and include the tax forms (and names of the forms) required when filing taxes for an LLC.

Be sure to include in your discussion 3 different ways in which an LLC may file its tax returns, depending on the elections made on form 8832 and the number of members.

Part 2

Davy Jones needs to file taxes for his business and provides the following information.

Using your Tax Guide, you determine you’re going to be required to prepare a 1040 Schedule C Profit or Loss form a Business and 1040 Schedule SE Self Employment Tax for Jones’ Sole Proprietorship.

Davy Jones’ Nautical Tours is owned and operated as a Sole proprietorship by David K. Jones (SSN 000-00-0000)

Principal Business or Professional Activity Code; 114110
Principal business; Charter fishing tours
Employer Identification Number 867530950

Business address
1008 North Harbor Drive
San Diego, CA 92103

Home address
8700 Lake Murray Blvd #2
San Diego, 92119

The cash accounting method is utilized

Jones did materially participate in the operation of the business

The business started January 1st, 2012

Wages consist of $25,000 paid to one employee and $15,000 to another
Depreciation expense; Jones owns a fishing boat, The Jolly Roger, which he purchased for $850,000. The depreciation on the income statement is book depreciation and will differ from what is actually used on Line 13 Depreciation of form 1040 Schedule C.
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The boat is depreciated using the Modified Accelerated Cost Recovery System (MACRS), half year convention, is in its 4th year of service and the 10-year recovery period is used.
Utilize Publication 946 How to Depreciate Property to calculate the correct depreciation amount to enter on the 1040 Schedule C. Locate Table A1 in the Appendix to calculate the tax-deductible depreciation.
Interest expense is interest paid on the loan for the boat
Insurance payments were made to cover liability for guests and for the boat
Payroll taxes; Federal Insurance Contributions Act (FICA); Social Security and Medicare payments made on the behalf of employees
Federal Insurance Contributions Act (FUTA) made on behalf of employees
Travel was purely for business purposes
Parking fines are tickets Jones received for parking illegally
Lease expense was paid to Honda Motors for his mother’s car lease, who is not involved in the business in any way

Davy Jones’ Nautical Tours 2016 Income Statement

Revenue

$ 400,950.00 

Wages

$ 40,000.00

FICA

$ 3,060.00

FUTA

$ 85.00

Depreciation

$ 85,000.00

Interest

$ 43,900.00

Advertising

$ 6,350.00

Supplies

$ 23,795.00

Legal fees

$ 6,940.00

Insurance

$ 26,700.00

Boat slip rental

$ 33,010.00

Travel

$ 6,250.00

Office expense

$ 7,940.00

Parking fines

$ 1,350.00

Lease expense

$ 3,650.00

Net Profit

$ 112,920.00 

Assignment Guidelines

To prepare the Sole Proprietorship’s tax return, complete the following steps:

Ensure that you have Adobe Reader installed on your computer to open and use the downloadable IRS forms.

Go to the IRS Web site and download the fill-in tax forms that you will need to complete.

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Complete all necessary downloaded fill-in forms on the computer and save.

Save the completed forms as PDFs and upload for grading.

You may not utilize Tax preparation software to complete this assignment! This constitutes cheating!

Save the completed forms as PDFs and upload for grading; double check your PDFs to ensure data was retained when they were uploaded to Submitted Assignments; blank forms will yield 0 points!

You will be required to fill out and submit the following forms:
1040 Schedule C – Profit or Loss from Business (Sole Proprietorship)

1040 Schedule SE – Self Employment Tax

 Limited Liability Company and Tax Treatment Analysis

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