Question;76. Tony and Susan are starting a retail business selling formal wear for men and women.They estimate profits and losses for the next five years to be: ($20,000), ($10,000),($5,000), $10,000, and $50,000 respectively. Susan will work full time in the storewhile Tony will be involved in managing the operations. Susan is married to Tom andis in the 28% marginal tax bracket. Tony is single and has other sources of income thatput him in the 28% marginal tax bracket. Susan will be paid a salary of $30,000 forthe first five years, after which her compensation will be reviewed. Tony and Susaneach contribute $50,000 to get the business started. The remaining question facingTony and Susan is which business form to use for the business. They believe theyshould operate as a partnership but have been informed that forming a corporationmight be a better option since it would limit their liability. Prepare an analysis todetermine whether Tony and Susan should operate their business as a partnership or acorporation.74. Bert founded Sambert Corporation a little over a year ago. He believes that hiscompany, which sells specialized computer toys, will be very profitable over thenext several years, as evidenced by its $400,000 of earnings in the current year.Although Bert does not need the income, he is interested in getting the earningsout of the company while paying the least amount of tax possible. Bert intends towork actively in the company and be paid a reasonable salary for the next 5 years.At the end of that time, he expects his oldest son to take over the company afterfinishing college. Bert knows that the salary he draws will reduce the corporation?staxable income and that he will be taxed at ordinary rates on that income. However,he is interested in the tax implications of property distributions the companymight make to him either in redemption of his shares or, if something prevents hisson from taking over the business, in the liquidation of the corporation. Discussthe types of distributions that a shareholder might encounter over the life cycle ofthe corporation and the tax implications of each type of distribution.108. Fred, age 50, plans to retire when he reaches age 65. He is considering investingin either an IRA or a Roth IRA. He plans to contribute $6,000 per year until heretires. Fred expects his marginal tax rate to be 25% until he retires, when heexpects his marginal tax rate to drop to 15%. He anticipates that the rate of returnon either IRA will be 8% before considering any tax effects. Prepare a memo analyzingthe tax effects of investing in a regular IRA versus a Roth IRA. Discuss factorsthat might influence Fred?s decision to choose either an IRA or a Roth IRA.Assume that Fred meets the income limits for making the maximum annualcontribution.
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