Reference no: EM132462110
New Venture Facts
Nicholas is considering starting a new venture and projects the following Income Statements for the first few years:
|
Sales
Cost of Goods Sold
|
YEAR 1
|
YEAR 2
|
YEAR 3
|
|
$100,000
45 000
|
$500,000
200,000
|
$1,000,000
400 000
|
|
Gross Profit
|
$ 55 000
|
$300 000
|
$ 600,000
|
|
Selling Expenses
|
$ 25,000
|
$ 35,000
|
$ 55,000
|
|
Operating Expenses
|
45,000
|
65,000
|
245,000
|
|
Administrative Expenses
|
15 000
|
25 000
|
85 000
|
|
Total Expenses
|
$ 85 000
|
$125 000
|
$ 385 000
|
|
Net Income (Loss)
|
($ 30 000)
|
$175 000
|
$ 215,000
|
- Nicholas is single and works full time earning an annual salary of $250,000 from his employer in each year. Nicholas rents an apartment and earns $50,000 in City of New York Municipal Bond interest each year. Nicholas has no other income, deductions or dependents. Nicholas Wilson lives at 456 Milan Court, Rochester NY 14623.
Nicholas' Questions
Question 1. If Nicholas operates his business as a Sole , ignoring self-employment taxes, what will his personal 2019 Federal Income Tax Liability be in year 1?
Question 2. If Nicholas operates his business as an S-Corporation, ignoring self-employment taxes, what will his personal 2019 Federal Income Tax Liability be in year 2?
Question 3. If Nicholas operates his business as a C-Corporation, ignoring self-employment taxes, what will his personal 2019 Federal Income Tax Liability be in year 3?
Question 4. Based on his projections, what form of business entity would you advise Nicholas to operate as in year 1 and why?
Question 5. Based on his projections, would you advise Nicholas to change the business entity type he operates under in year 2 (from what you advised him of in year 1), and if so, why?
Question 6. Based on his projections, would you advise Nicholas to change the business entity type he operates under in year 3 (from what you advised him of in year 1), and if so, why?
Client Letter
- Please write a formal letter to Nicholas addressing/answering each of his questions, providing your advice and reasoning behind your suggestions.