Quinn Parker and Taylor Parker are two family members behind a new business venture they are calling Modems for All. Quinn is also the CEO of Industrial Kitchens, Inc., a long-time Deloitte client. The new venture that they are starting will manufacture a new high tech modem that will provide reliable internet access at relatively low cost. They believe this advance in technology will help address the issue of internet access for school children who need to learn remotely. They are looking for advice on how they should structure this venture.

1. Start by completing the total federal income tax cost if Modems for All operates as part of Industrial Kitchens. Under this option, the operations will be combined and the organization will continue to operate as an S corporation. Information about the taxable income and deductions for the operations is included in the spreadsheet (attached at the end of this file). To complete this analysis, you will need to determine the income of the S corporation under the following two options:

– Calculate the ordinary income of the S corporation if the company decides to depreciate the equipment without using any provisions that will accelerate the cost recovery (for example, bonus depreciation and/or Sec. 179). 

– Calculate the ordinary income of the S corporation if the company decides to use Sec. 179 and/or bonus depreciation. Once you’ve calculated the ordinary income of the S corporation, you will then need to: 

– Calculate the impact on the tax liability of the shareholders. This step will include the calculation of the qualified business income deduction for the shareholders.

2. Next, complete the total federal income tax cost if Modems for All operates as a separate C corporation. Under this option, IK will continue to operate as an S corporation, while MFA will  4 operate as a C corporation. To calculate the after-tax income, you will need to consider the effects of each. This step will involve the following: 

– Calculate the ordinary income of the S corporation and the related tax liability for the shareholders, including the effect of the qualified business income deduction for the shareholders. 

– Calculate the taxable income and the tax liability for Modems for All as a C corporation. To complete this analysis, you will need to determine the income of the C corporation under the following two options: 

– Calculate the taxable income of the C corporation if the company decides to depreciate the equipment without using any provisions that will accelerate the cost recovery (for example, bonus depreciation and/or Sec. 179). 

– Calculate the taxable income of the C corporation if the company decides to use Sec. 179 and/or bonus depreciation. 

3. In addition to calculating the after-tax income for each of the options for its operations, Quinn and Taylor would also like you to consider other tax or non-tax considerations that may impact their decision on the type of entity they should choose for the operations. What are some key tax issues that they should consider, both today and in the future, if they continue to grow or if they don’t meet their projections in future years? What other factors, besides tax, should they consider?