Blair owns a snowmobile manufacturing business, and Bruce owns a mountain bike manufacturing business. Because each business is seasonal, their manufacturing plants are idle during their respective off-seasons. Blair and Bruce have decided to consolidate their businesses as one operation. In so doing, they expect to increase their sales by 15% and cut their costs by 30%. Blair and Bruce own their businesses as sole proprietors and provide the following summary of their 2009 taxable incomes: Blair Bruce Business income Sales $600,000 $450,000 Cost of goods sold (400,000) (300,000) Other expenses (100,000) ( 75,000) Business taxable income $100,000 $ 75,000 Other taxable income (net of allowable deductions) 20,000 35,000 2009 taxable income $120,000 $110,000 Blair and Bruce don't know what type of entity they should use for their combined business. They would like to know the tax implications of forming a partnership versus a corporation. Under either form, Blair will own 55% of the business and Bruce will own 45%.They each require $70,000 from the business initially and would like to increase that by $6,000 per year.
Based on the information provided, do a three-year projection of the income of the business and the total taxes for a partnership and for a corporation.
In doing the projections, assume that after the initial 30% decrease in total costs, their annual costs will increase in proportion to sales.
Also, assume that their nonbusiness taxable income remains unchanged. Use the 2009 tax rate schedules to compute the tax for each year of the analysis. (https://www.kiplinger.com/features/archives/2009/05/2009-income-tax-brackets.html)