A finished ACC-465 Topic 7 entity recommendation memo example, pricing an S corporation election for a $150,000 sole proprietorship and stating the break-even profit below which the recommendation reverses. Searches like "acc 465 topic 7 assignment example", "acc465 topic 7 sample" and "acc-465 topic 7 example" land here.
What a finished ACC-465 Topic 7 entity recommendation memo looks like
Its recommendation arrives in the memo's first paragraph, and the rest earns it. Self-employment tax on the current $150,000 profit is computed at the statutory 15.3 percent on 92.35 percent of net earnings, $21,194, with a note that the wage base is indexed and assumed not to bind. Under an S corporation, the memo assumes an $80,000 salary, labeled as an assumption to be supported by the owner's duties, and computes $12,240 of combined payroll tax. The difference, $8,954, is reduced by an illustrative $2,500 of added payroll and return costs to $6,454 a year. A C corporation is considered and set aside because the owner draws most of the profit to live on. The memo then solves for the profit at which savings equal costs, about $104,300 on the same assumptions.
How an ACC-465 Topic 7 example is structured
The memo is written to the owner and ordered from the answer to its conditions. The recommendation opens it in two sentences, followed by the facts and assumptions it rests on, each labeled to show which are hers and which are the memo's. A computation section sets the current and proposed structures side by side, with self-employment tax, payroll tax and compliance cost in separate rows. A section on reasonable compensation explains why the salary assumption carries the most risk and what would support it. The C corporation alternative gets one paragraph pricing the second layer on distributed profit. A break-even section then solves for the profit at which the election stops paying. The memo closes with the conditions that would reopen the question, among them lower profit, a second owner or a sale, and a statement that it is coursework analysis rather than advice.
The recommendation before any computation
The owner reads the answer, make the election on these facts, in the opening lines, and every section after it either supports or qualifies that answer.
Current and proposed side by side
Self-employment tax on the sole proprietorship and payroll tax under the S corporation sit in adjacent columns, so the $8,954 difference is visible rather than asserted.
Salary treated as the key assumption
The $80,000 wage is labeled an assumption tied to the owner's duties, since recharacterization risk makes it the figure a reviewer would challenge first.
Costs subtracted from the saving
Payroll processing, a separate return and state fees are estimated at an illustrative $2,500 and deducted, which turns a gross saving into a net one.
A break-even profit solved
The memo finds the profit near $104,300 at which savings equal costs, giving the owner a figure that signals when the election should be revisited.
Where marks go in ACC-465 Topic 7
Memos that recommend an S corporation because it saves payroll tax, and stop there, lose marks for describing a consequence instead of pricing it. The salary assumption is the next point of loss: papers that set wages unrealistically low to maximize the saving present a figure that reasonable compensation guidance would not support, and markers in many sections notice. Leaving out compliance costs overstates the benefit by the full cost of running payroll and filing a separate return. Papers that ignore the C corporation entirely give the owner no reason the alternative was rejected. A recommendation without a break-even point treats a result that depends on profit as permanent. Stating the Social Security wage base as a current figure with no year attached is marked as unsupported, and the 92.35 percent adjustment is often missed, which overstates self-employment tax.
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ACC-465 Topic 7 questions, answered
Where does the S corporation saving come from?
From the difference in employment taxes. A sole proprietor pays self-employment tax on essentially all net earnings from the business. An S corporation owner who works in the business pays payroll tax on wages but not on distributions of the remaining profit. The saving therefore depends on how much of the profit is paid as salary, which is why the salary assumption carries so much weight.
Why not choose the lowest possible salary?
Because an S corporation owner who performs services must be paid reasonable compensation for them, and IRS guidance and court decisions allow wages that are too low to be recharacterized, with the saving reversed and penalties possible. The memo labels its salary as an assumption to be supported by the owner's actual duties and time rather than chosen to produce the largest saving.
Why compute a break-even profit?
Because the recommendation depends on profit staying high enough to cover the election's fixed costs. The break-even figure tells the owner when the answer changes, which makes the recommendation useful beyond the year it was written. On the example's assumptions it is about $104,300; a different salary or cost estimate moves it, and the memo shows the formula, letting the owner measure the shift.