Describe how you would reconcile the book income to tax income differences for ABC as a corporation and an s-corporation Homework Help

Given: On January 1, Year 10, ABC Company applied for and was granted a charter to begin business as a corporation changing from the original sole proprietorship business form. (The Year 6 Income Statement and Balance Sheet are given in the attached document ?Corp and S-Corp Tax Return?Financial Statements.?).

During the organization of ABC Company as a Corporation, the company incurred legal expenses in the amount of $15,000, state filing fees in the amount of $2,000, accounting fees in the amount of $5,000, and printing expenses related to the sale of stock certificates in the amount of $2,500. The Year 10 corporate balance sheet includes the organization costs. The corporation will take advantage of any allowed expense for the year on its Year 10 tax return. No amortization will be recognized in this first year of incorporation.

During Year 10 the following transactions occurred:

? A fire broke out in the retail store causing $200,000 in damages. ABC Corporation received $80,000 from the insurance company for damages.

? ABC Corporation donated $50,000 to a homeless shelter for improvements.

The original ABC Company had the following short- and long-term gains and losses:

Year 5?Net short-term capital gain?$20,000

Year 6?Net long-term capital loss?$15,000

Year 7?Net long-term capital gain?$10,000

Year 8?Net short-term capital loss?$25,000

Year 9?Net short-term capital gain?$30,000

ABC Corporation received $75,000 in dividends from XYZ Corporation. ABC owns 20% of XYZ. 

At the end of the year, the ABC Corporation board of directors is considering applying for S-Corporation status with the IRS.
Task:

Note: For all calculations in this task, assume a marginal tax rate of 20%.

A. Using the financial statements provided (see the attached document ?Corp and S-Corp Tax Return Template?), correctly perform the following calculations for ABC as a corporation: 
1.Taxable income or loss for ABC as a corporation 
2.Special tax deductions allowed for ABC as a corporation 
3.Tax treatment of capital gains and losses for ABC as a corporation (Capital gains/losses do not apply to the corporation. They would have been closed out with the change of business form.) 
4.The expense item limitations on a corporate tax return for ABC as a corporation

B. Using the financial statements provided (see the attached document ?Corp and S-Corp Tax Return Template?), correctly perform the following calculations for ABC as an s-corporation: 
1.Taxable income or loss for ABC as an s-corporation 
2.Special tax deductions allowed for ABC as an s-corporation 
3.Tax treatment of capital gains and losses for ABC as an s-corporation 
4.The expense item limitations on a corporate tax return for ABC as an s-corporation

C. Write a brief essay (suggested length of a total of 1-2 pages) in which you do the following: 
1.Describe how you would reconcile the book income to tax income differences for ABC as a corporation and an s-corporation. 
2.Make a recommendation for the board of directors about whether or not ABC should become an s-corporation, based on your calculations. (You may present this portion of your essay in memo format if you wish.)

D. When you use sources, include all in-text citations and references in APA format.

Note: For definitions of terms commonly used in the rubric, see the attached Rubric Terms.

Note: When using sources to support ideas and elements in a paper or project, the submission MUST include APA formatted in-text citations with a corresponding reference list for any direct quotes or paraphrasing. It is not necessary to list sources that were consulted if they have not been quoted or paraphrased in the text of the paper or project.

Note: No more than a combined total of 30% of a submission can be directly quoted or closely paraphrased from sources, even if cited correctly. For tips on using APA style, please refer to the APA Handout web link included in the APA Guidelines section.