15 May TAX 660 Final Project Guidelines and Rubric. ????????????????????????????Overview Working as an accounting associate in a financial organization r

Alexander Apanyin

SNHU

MBA 660: 6-2. Final Project Milestone Two: Business Operation Recommendations

April 28, 2022

Memorandum

To: Stakeholders- Tai-Ga

From: The Tax Advisor

Date: April 28, 2022

Subject: Business Operation Recommendation

The objective of this memorandum is to offer business operation recommendations related to tax elections, inventory cost flows and other accounting matters that should be put into consideration before the start of business operations. The memo outlines the best tax and inventory practices that Tai-Ga should put into consideration to offer better support in establishment of business operations.

Inventory cost flow

In relation to inventory cost flow, there are couple of ways in which the business can accomplish its inventory cost flow. The first method is First in First out method (FIFO). Under FIFO, the first item to be stocked is the first item to be sold. This method is very critical in maintaining a balanced inventory. Another technique is Last in First out (FIFO), which assumes that the last item in is the first item to be sold. Under this method profits margins are higher than in FIFO. Third method is the specific identification method, where one can physically determine which specific products are purchased and sold. Cash flow moves with the actual items sold. This method provides accurate information on inventory value. The last method is the Weighted Average Cost which is used when a business does not have major changes in the inventory. It calculates the average of all products sold during a period of time (Team Hourly, 2021). The most suited inventory cost flow for Tai-Ga is FIFO, it will help the business to solve problem of overstocking thus reducing overhead costs. Also, the lower cost of goods sold under FIFO reduced the tax liability of the company.

Business accounting methods

In terms of business accounting, there are three major methods that Ta-Ga can use: cash accounting, accrual accounting and hybrid accounting. Cash accounting method records revenues and expenses when they are received and paid. Transactions are only recorded when cash is spent or received, making it one of the simple accounting methods. In accrual accounting method, a business records revenues and expenditures when they occur. Even though it is a complex accounting method, accrual accounting gives a more accurate picture of the financial condition of a company by matching revenues with the expenses. Transactions are recorded only when they are incurred and not when waiting on the payment. Hybrid accounting is a mix of cash accounting and accrual accounting method (Kosinski, 2021). Based on the three accounting methods, I would recommend cash accounting for Tai-Ga business. This method is effective in avoiding tax liability as it defers tax payments until the payment for a product or service is received by the business.

Depreciation method and asset lives

The best depreciation method for assets that Tai-Ga can implement to meet its financial objectives is the accelerated depreciation method. This type of valuing asset depreciation allows deductions of high expenses in the first few years of purchase of an asset and lower expenses as the asset ages. Modified Accelerated Cost Recovery System (MACRS) is a popular depreciation method that the business can use to value its live assets (Kagan, 2020). It allows a business to capitalize on the cost of an asset to be valued over a specified period through yearly deductions. From a tax perspective, the method is beneficial to a business as it allows larger deductions in first few years of operation then a smaller write off later (Levy, 2016).

Fiscal year end

Fiscal year is critical to business when it comes to tax purposes and financial reporting. A taxable year ends on 31st December of every year while fiscal year end is the reporting date which ends on a different quarter date. Doing tax reporting at the end of a taxable year, 31st December is ideal for the business as it allows Tai-Ga to perceive how did the business performs during each quarter. In addition, it is a more flexible period if the business is dealing with multijurisdictional operations.

Multijurisdictional operations

Different jurisdictions have different regulations when it comes to financial reporting and taxation. Therefore, when operating in different jurisdictions, a company should be aware of regulations related to business in a state or country they are operating in. In Some jurisdiction, businesses pay high taxes as compared to other jurisdictions. Therefore, when considering expansion to other territories, a business should consider expanding to jurisdictions that have low taxes as it will be beneficial for the business financially (Nelson, 2015). Understanding different rules of IFRS and US GAAP is important to understand regulations of different countries and states. Tai-Ga may expand to foreign nations of other states, therefore, it is imperative for the business to consider nations where it will be charged lower taxes. This will be imperative for the business as it will accrue more profits by paying less tax. By implementing the recommendations stated above, Tai-Ga will be in a better position to operate on better financials.

References

Team Hourly. (2021). What are the different inventory valuation methods for small businesses? https://www.hourly.io/post/inventory-valuation-methods

Levy, B. H. (2016). Depreciable asset lives: the forgotten estimate in GAAP. https://www.cpajournal.com/2016/09/08/depreciable-asset-lives/

Kosinski, J. (2021). Accounting methods: how to pick the best option for your business. https://www.patriotsoftware.com/blog/accounting/accounting-methods/

Kagan, J. (2020, May 31). Modified Accelerated Cost Recovery System (MACRS). https://www.investopedia.com/terms/m/macrs.asp#:~:text

Nelson, R. J. (2015, December 09). International Tax Laws: How to Understand Tax Implications of Doing Business Overseas

,

Alexander, Apanyin

MBA 660: 4-1, MILESTONE ONE (MEMO)

SNHU

APRIL 2022

Memo

Date: April 11, 2022

To: Stakeholders

From: The Tax Advisor

Subject: The Appropriate Form of Business for the owners of Tai-Ga

Executive Summary

The Tai-Ga organizers should form an S corporation. An S corporation is a type of company that protects members from taxes. It offers pass-through taxation to members, which help prevent double taxation. An S corporation also offers limited liability protection, which is also beneficial to members

Forms of Business

The following entity options are available to the organizers:

Partnership

A partnership business is made up of two or more individuals who combine different resources to form a business. These individuals share risks, losses, as well as profits. The four types of partnership are general partnership, limited partnership, limited liability partnership, and limited liability limited partnership. The main advantage of a partnership business is the exemption from tax at the entity level. Partners are taxed only at the individual level. However, members of a partnership (including general and limited partners) are subject to self-employment tax (Lewis, 2018). Additionally, each general partner is liable for all the partnership obligations. Each general partner is also liable for the wrongful acts and negligence committed by partners and employees in the scope of the partnership business.

C Corporation

A C corporation, also known as C-corp, is a legal entity that is owned by shareholders. A C corporation offers its shareholders limited liability protection. Since the corporation is a separate business entity, all obligations, liabilities, and debts are fulfilled by the corporation. A C corporation also enjoys low tax rates. This is more advantageous for a small business. A C corporation also offers fringe benefits – additional benefits offered to employees (Gerard, n.d.). Fringe benefits might be tax-deductible when they are offered to a shareholder-employee. The main disadvantage of a C-corp is double taxation. A C corporation is required to pay corporate income tax. And after paying dividends from after-tax earnings, the shareholders are required to pay individual income taxes.

S corporation

An S corporation, also known as S-corp, is a type of corporation that protects members from taxes. One major advantage of an S-corp is that shareholders are protected from double taxation. An S corporation is a pass-through entity. This means that business income, losses, credits, and tax deductions are passed through to the shareholders, instead of being taxed at the entity level (Huston, 2020). This prevents the double taxation problem that usually arises in a C-corp. An S corporation also provides limited liability protection to members. This means that members are not accountable for the corporation’s business debts and legal liabilities. One major disadvantage of an S corporation is that most fringe benefits offered by the corporation are subject to taxation.

LLC

A limited liability company (LLC) is a type of business that protects members from personal liability. As the name suggests, an LLC offers its members limited liability protection. This means that members are not personally accountable for business liabilities and debts. An LLC is also considered a pass-through entity. This means that the company itself does not pay taxes on corporate income. Instead, the members pay taxes on their share of the company’s profit. One major disadvantage of an LLC is that owners may have to pay self-employment taxes.

Recommendations

The Tai-Ga organizers should consider an S-corp. An S-corp offers limited liability protection to members. This means that shareholders are not accountable for the corporation’s business debts and legal liabilities. An S-corp also offers pass-through taxation to shareholders. This means that the corporation will not have to deal with double taxation. Double taxation occurs when business earnings are taxed twice at both the entity level and individual level. Tai-Ga will be a pass-through entity. A pass-through entity does not have to pay taxes. Instead, owners or members pay taxes on business profits. The Tax Cuts and Job Act (TCJA) – the significant tax reform law that came into force in 2018 – has established a new tax deduction for members of pass-through entities. According to the law, qualified pass-through members can deduct around twenty percent of their net income from the income taxes (Fishman, 2021). This reduces their income tax rate by twenty percent. As a qualified pass-through entity, Tai-Ga will benefit from this law. More specifically, the corporation will be able to optimize tax outcomes. For instance, if Tai-Ga has a total of 200,000 dollars in pass-through income, it can deduct up to 40,000 dollars. This deduction is scheduled to last until 2026.

Capital structure

The most vital element of forming a business is capital. It usually acts as the basis of the company or business. The Tai-Ga organizers should consider both equity and debt capital. Equity capital is money or funds raised by issuing shares to investors. In return, the corporation creates long-term shareholder value. Shareholder value will be determined by the ability of the company to increase sales, as well as free cash flow and earnings, which can increase capital gains and dividends for the shareholders. On the other hand, debt capital refers to funds or capital that a corporation borrows from lenders. In return, lenders will require repayment of the principal together with interest added to it. Tai-Ga should report its cost basis information to the IRS (Internal Revenue Service). Cost basis refers to the purchase price of an asset.

I hope you find this information useful.

References

Fishman, S. (2021). The 20% Pass-Through Tax Deduction for Business Owners. NOLO. Retrieved from: https://www.nolo.com/legal-encyclopedia/the-new-pass-through-tax-deduction.html#:~:text=For%20example%2C%20if%20you%20have,to%20understand%20this%20complex%20deduction.

Gerard, J. (n.d.). Tax Advantages of a C Corporation. Chron. Retrieved from: https://smallbusiness.chron.com/tax-advantages-c-corporation-3852.html

Huston, H. (2020). S corp (s corporation) advantages & disadvantages. Wolters Kluwer. Retrieved from: https://www.wolterskluwer.com/en/expert-insights/s-corporation-advantages-and-disadvantages

Lewis, T. (2018). IRS pursuing self-employment taxes from LLC members. Journal of Accountancy. Retrieved from: https://www.journalofaccountancy.com/issues/2018/may/self-employment-taxes-llc-members.html

,

Alexander Apanyin

SNHU

MBA 660: 7-2 Business restructuring recommendations

MAY 2022

Memo

Date: May 2, 2022

To: Owners of Tai-Ga

From: The Tax Advisor

Subject: Business Restructuring Recommendations.

EXECUTIVE SUMMARY

Change of entity is concerned about change of business ownership. A business always wants to make the best decision that will benefit all the stakeholders. Furthermore, a business must ensure that stock ownership seeks to benefit everyone. Stakeholders must ensure that they are benefiting from stock ownership. A business must make investment decisions where all stakeholders are able to benefit. The percentage of ownership interest in business is in relation to the percentage of stock a shareholder owns. Shareholders must make sure that they make decisions where they can benefit financially. In addition, stakeholders are more concerned with stock transaction tax. When selling securities, investors or stakeholders must choose between paying 20 percent of the profits from sale or to pay one percent withholding tax on the value of the sale. If investors choose to pay one percent withholding tax, the combined transaction tax is increased to 1.3 percent. Therefore, investors are more interested in stock transaction tax where they can save the most and incur more profits. In addition, investors seek to avoid being taxed twice when they sell stock. Therefore, Tia-Ga stakeholders will seek to choose stock transactions where they pay more tax. By changing the business ownership, Tai-Ga will have much impact on how much it pays in terms of taxes. A partnership business is taxed as the same as sole proprietorship. Partners are regarded to be the same tax entity as the business itself. Partnership business is pass through tax entity, which means the business itself does not pay income taxes. The business skips tax liability “passes through” taxation requirements. In partnership business, partners pay tax based on how much the partners earn (Thuronyi, 1998). They are responsible for paying their share of business pass through income. Partners must include taxes and debts on their personal income tax returns. This means that the amount paid by the business in the form of taxes will be focused on the amount partners earn from the business. partners are considered as self-employed and thus they must pay self-employment taxes.

The right type of partnership business can maximize savings on tax because it depends on how much the business is taxed. Certain types of businesses are best in relations to tax benefits. A business must register a business type that saves on taxes. Partnership business can be registered as limited liability company (LLC) which is more preferred by certain professionals. Tai-Ga can leverage on LLC to enjoy tax discounts associated with this type of business. LLC business has more flexibility because shareholders are able to file a partnership, where members are able to enjoy 20 percent pass through deduction if stakeholders accept to be taxed as a pass-through, which largely depends on the level of income of the business (Thurony, 1998). Therefore, even though majority of states do charge annual minimum taxes on LLCs, it is often insignificant and thus a business is able to save on taxes. Tax saving is major factor to consider when choosing a corporate entity with asset protection behind it.

The concept of income multiplier plays a critical role in investors understanding whether to stick with a company or to sell their shares. It is one of the underpinning principles of Keynesian economics. Income multiplies is about a dollar spend turns into more money. The best way for major suppliers for Tai-Ga to enter in business with the company is by buying a 10 percent of shares of the business. In this way, the suppliers will be able to benefit from the business if it makes profits. Also, the investors will be in a position to make critical decisions related to the business because of having significant shares to the business. Based on the given details, Tai-Ga is projected to experience potential financial growth (Thuronyi, 1998). Therefore, purchase of the company’s stock by Brian is a potential investment. By buying 2 percent of the business, Brian will be able to benefit from the growth of the business. Based on debt-to-equity ratio of Tia-Ga, Brian can understand the potential risks associated with the business and whether to buy stocks of the company. A small business with only owner pays a tax of 13.3 percent on average while business with more than one owner pay 23.6 percent on tax. On the other hand, small corporations known as s corporations pay an average of 26.9 percent. Therefore, rather than being the owner of the business through partnership, it is imperative to buy stock of the company. Always, businesses to ensure that they enjoy tax benefits as possible. Tai-Ga income stood at $17.5 million. However, 5 million dollars of the business invested in inventory and other operating assets. Therefore, based on the earnings, LLCs type of business would be perfect for Tai-Ga business. based on the two percentages, a business can understand whether it is able to benefit from a given tax option. Business tax is based on its income. The reason for partnership business is that shareholders are not required to pay for income tax but to pay tax for profits passes through the owners and partners. Partnership is often viewed as an extension of its owners and helps partners not to bear the burden for tax.

References

Thuronyi, M. V. (1998). Tax Law Design and Drafting, Volume 2 (Vol. 2). International Monetary Fund.

,

,