Bob business is a partnership
Bob has a very successful used car business located at 210 Ocean View Drive in Pensacola, Florida. Last year, you filed a Schedule C for Bob that had $1,200,000 in taxable income. The business will have an income growth rate of 10% per year over the next several years. Bob's personal wealth, including investments in land, stocks, and bonds, is about $14,000,000.
Last year, he reported interest income of $20,000 and dividend income of $6,000. The $14,000,000 includes land worth $9,000,000 that Bob bought in 1966 for $450,000. The stocks and bonds have a tax basis of $1,200,000 and they are currently worth $5,000,000. All of the investments have been owned for more than a year. In addition to his investments, Bob paid $140,000 for his home in 1972 and it is now worth $600,000.
The used car business is currently valued at $53,000,000 including the land and building, which are worth $41,000,000. Bob's tax basis in the land and building is $2,000,000 and $400,000, respectively. The inventory is worth $12,000,000, with a cost basis of $5,000,000; the remaining assets, which include office furniture and equipment, make up the remainder of the business's total value. The office furniture and equipment are fully depreciated.
Bob wants your professional advice regarding whether he should continue to operate as a sole proprietor or convert the business to a partnership. Based on one of the business entities selected, Bob wants to include Mandy-his daughter-in the business as an owner and manager with a possibility of 40% interest. One of his concerns is what would happen to his business after he passes away.
Required-
Prepare form 1065 and schedule K's for Bob and Mandy.
Prepare Bob and Mandy 1040 and supporting schedules.
When preparing the tax forms, use the amounts provided in the assignment prompt to the extent those numbers are relevant and feel free to make assumptions. To keep the detail minimal, I would make revenue, COGS, and other expense assumptions. For things like other expenses, only break out the detail stated in your proposed plan for Bob. For assets, liabilities, and equity, I'd also keep it simple; cash plus any other assets discussed in your proposal but liabilities and equity accounts as needed to balance.