Exam 13: Comparative Forms of Doing Business

The profits of a business owned by Taylor (60%) and Maggie (40%) for the current tax year are $100,000. If the business is a C corporation or an S corporation, there is no effect on Taylor's basis in her stock. If the business is a partnership or an LLC, Taylor's basis in her partnership interest or basis in her stock is increased by $60,000.

Maurice purchases a bakery from Philip for $410,000. He spends an additional $150,000 (financed with a nonrecourse loan) updating the bakery equipment. During the first year of operations as a sole proprietorship, the bakery incurs a loss of $125,000. Maurice has $300,000 of salary income as the chief financial officer of a publicly-traded corporation. He has interest income of $30,000 and dividend income of $50,000.

Techniques that can be used to minimize the current period tax liability include: