Assignment Question
The owners of The Car Wash have asked you to prepare their tax return. Their financial statements are audited by a local certified public accounting (CPA) firm, and they have provided them to you as a reference. A copy of the Income Statement and Balance Sheet have been reproduced below. In your discussion, you obtained the following pieces of additional information to prepare the tax return:
Name of business owner: Tim Smith, SSN:123-45-6789
Tim Smith's address: 8765 Warner Street, Huntington Beach, CA 92605
Name of business owner: Jack Dillard, SSN: 987-65-4321
Jack Dillard's address: 4321 Courtyard Place, Huntington Beach, CA 92605
Business name: The Car Wash
Business address: 1046 Broadway Street, Huntington Beach, CA 92605
Business description: Self-Service Car Wash
Employer identification number: 99-8877665
Date the business started: January 1, 2008
Business will file its return using the cash basis of accounting
Income Statement
December 31, 20XX
Revenue:
Service revenue
$254,603
Expenses:
Advertising
2,520
Depreciation
31,250
Insurance
7,260
Interest expense
36,204
Licenses and fees
7,260
Miscellaneous
4,074
Office expense
8,911
Salaries and wages
67,460
Payroll taxes
9,444
Employee benefits
1,349
Professional fees
1,210
Repairs and maintenance
20,674
Telephone
900
Travel
1,500
Utilities
27,752
Net income before taxes
$26,835
Balance Sheet
January 1, 20XX
December 31, 20XX
Assets
Cash
$28,638
$64,979
Buildings and other depreciable assets
555,000
555,000
Accumulated depreciation
(62,500)
(93,750)
Total assets
521,138
526,229
Liabilities and equity
Loans
183,757
167,962
Mortgage
233,229
227,280
Equity investment
160,000
160,000
Retained earnings
(55,848)
(29,013)
Total liabilities and equity
$521,138
$526,229
Part I - Adjust and make any changed to your IP4 tax returns based on faculty feedback. Include your finished and fully edited version for Part 1.
Part II - Deliverable Length: 800-1,100 words
Your client has been informed that an S corporation is a popular business form and wants to know more about it. Please write a professional memo to your client responding to his inquiry. Be sure to at least discuss the following items:
What is an S corporation?
When is it advisable to be taxed as an S corporation?
How does an organization become an S corporation?
If The Car Wash is a corporation, can they be taxed as an S corporation?
Why or why not?
What criteria must be met?
If The Car Wash is a LLC, can it be taxed as an S corporation?
If so, what does it need to do to elect S corporation status?
How would The Car Wash report and pay tax if it is an S corporation?