Case Study: Kaweah Family Rafting Home
Location, Location, Location
University of Phoenix-Team D
ACC/543
November 24, 2014
Richard Collins
Location, Location, Location
River-rafting is an exciting water excursion, and the location is vital to the success of Kaweah’s Family small river-rafting company. To ensure the establishment and longevity of the river-rafting company is triumphant the accounting firm will complete a thorough analysis of the best river-rafting locations. California, Colorado, and Idaho will be examined as recommended locations. The legal aspects of acquiring, holding, and disposing of real and personal property will be inspected. In addition to, the insurance risks, the impact of identified environmental issues, and whether building or purchasing …show more content…
a permanent structure versus utilizing the mobile home the client currently owns. Based on the results of the firm’s findings, a recommendation will be made regarding the best financially sound, riveting river rafting, and attractive real estate investment location.
Acquiring, Holding, and Disposing of Real Property
“Real property is immovable or attached to immovable land or buildings” (Chessman, 2007).
Buildings constructed on land are the most common commercial real property real estate. The purchase of the real property will give Kaweah surface rights to develop the property as it desires. The Kaweah Family Rafting will acquire real property by purchasing a building, operator as a sole-owner, and register the business as a Limited Liability Company to minimize personal liability, minimal start-up cost, and yet still take advantage of the maximum tax benefits. Holding the title will allow Kaweah to hold the title of the property as a freehold estate under the estates in fee-fee simple, and the owner is free to use the property as he or she sees …show more content…
fit.
The freehold estate and LLC registration will blind greatly.
According to the SBA: Limited Liability Company, the acquiring an operating agreement will provide smooth operational rules for the structure of the LLC’s finances and organization, including percentage of interest, profit and loss allocation, rights of responsibility, and the posting of license and permits. The benefits of holding real property as an LLC is the members are protected from personal liability from business decisions or actions, meaning that if the LLC incurs debt or sued the owners personal assets are exempt, however the business is not relinquished from liability.
Idaho and Colorado are both seasonal locations, and acquiring a river rafting company in sunny Southern California will allow the river rafting company to operate year-around. Acquiring real property instead of just leasing the land minimizes the owner of the surface rights from greatly increasing the lease amount once the business is up and going at the renewal of the lease, or owner forcing the business to move because the owner of the surface right are selling the land. Each state charges a fee just for holding an LLC. California charges $800 a year whether profitable or not plus, and a maximum of $12,590 depending on the net income bracket. Colorado takes 4.63% of the LLC’s net income, and Idaho charges a flat rate of 7.4% of the net income plus a minimum a $20 excise charge. Purchasing the land also allows the owner to dispose of the property through the sell or conveyance of transferring the property through a real estate agent or broker; or gifting it. The property can also be left to an inheriting. The most unfavorable disposal would be through a tax sale or adverse possession (SBA: Limited Liability Company).
The property tax of each location should be calculated. Each location will have a different tax rate, California most likely the highest. Acquiring real estate commercial real estate will require assessing how much will be paid in taxes after the purchase price, down-payment, mortgage payment, added closing cost, and any additional fees agreed upon fees such as the title search fee, legal fees, recordation fees, abstract fees, etc. These taxes are also known as tax basis or cost basis taxes, which are the taxes to acquire property. Holding taxes will solely depend on tax rate surrounding the indicated tax lines. Taxes paid on the disposal of property are figured after calculating capital gain, capital improvements, and depreciation deductions (Huffington Post, 2014).
Acquiring, Holding, and Disposing of Personal Property
Kaweah’s decision to acquire a building opposed to using the mobile home, personal property of the owner that is a movable fixture that can be taken anywhere was made analyzing the financial and accounting benefits of real property. Acquiring, holding, and disposing of personal property will be a constant of Kaweah Family Rafting. Many of Kaweah assets will consist of rafts, boats, kayaks, paddles, pumps, waterproof neoprene clothing, cameras, wetsuits, and dry bags, etc. Rafting equipment will be used extensively, must be depreciated, high wear and tear and disposition. Selling a river-rafting company can be complicated because the specified business use and deciding to whether or not to include personal property, such as the rafting equipment in the sales contract.
Business Use of Insurance and Various Risks
Insurance risks and costs vary from state to state. Considering this is a small business, and river-rafting related injuries are likely, the owner must be made aware of the various costs that will increase overhead. California requires an LLC to carry a minimum personal liability insurance of $500,000, and a maximum of $5,000,000. Idaho is a no fault state, and does not require insurance, however an individual can sue for up to $250,000 in punitive damages, and it is recommended that small business carry liability insurance of $500,000 to $1 million. Colorado requires a minimum personal liability insurance of $25,000 personal for bodily injury, $50,000 per accident for bodily injury, and $15,000 per accident for property damage. Colorado also has a commercial umbrella insurance designed to kick in and provide additional coverage if the personal liability insurance is depleted.
Insurance liability and employee injury risks must also be examined.
The river rafting tours will require and other events will require tour and safety guides, and the assistance of lifeguards, which heightens the possibility of employee injuries. The increase of employee risks could require workers’ compensation insurance. Each state has different mandates regarding workers’ compensation. Idaho requires worker’s compensation on all employees regardless of the business size. The employer is required to carry $100 per payroll per employee regardless if the employee is full time or part time. California requires workers’ compensation insurance on all business with more than five employees. It is up to the employer if they have the financial capability of being self-insured or using a third party insurance company. Colorado requires that all public and private employers in Colorado, with limited exceptions, must provide workers ' compensation coverage for their employees if one or more full or part-time persons are employed. Employers can choose from 200 private insurance
sectors.
Other insurance that should be looked at to protect the company and minimize loss is equipment insurance, such as insurance against river rafting equipment damage, and property insurance against floods; and earthquake if located in California.
Issues Involving White Water Rafting
While white water is a lucrative business, but there are impacts of environmental and other issues with this type of business such as river crowding and congestion, participant safety, environmental and economic impacts. Crowding and congestion are the major recreation management problems in the river corridor and have increased by commercial use. There are precautionary measures participants must follow where safety and rescue procedures are reviewed along with a life jackets and helmets.
The environmental impact some rivers presently have are regulations restricting the daily/annual operating times or numbers of rafters. Rafting contributes to the economy of in by protecting our rivers such as hydroelectric power, irrigation and other developments.
Conclusion
Based upon the analysis of legal aspects, acquiring, holding and disposing of real/personal property, insurance risks and environmental issues the accounting firm recommends The Kaweah Family Rafting to acquire real property by purchasing a building operating as a LLC in California.
.
References
Cheeseman, Henry R. (2007). Business Law: Legal Environment, Online Commerce, Business
Ethics, and Interpersonal Issues, 6e. Prentice Hall, Inc., A Pearson Education Company.
Phil Jemmet, CEO (January 23, 2014). Huffington Post: Business, Determining Tax Basis on
Your Commercial Real Estate. Breakwater Equity Partners. http://www.huffingtonpost.com/phil-jemmett/determining-tax-basis-on-_b_4262861.html SBA-U.S. Small Business Association: Limited Liability Company. Retrieved from https://www.sba.gov/content/limited-liability on November 29, 2014.
University of Phoenix-Team D
ACC/543
November 24, 2014
Richard Collins
Location, Location, Location
River-rafting is an exciting water excursion, and the location is vital to the success of Kaweah’s Family small river-rafting company. To ensure the establishment and longevity of the river-rafting company is triumphant the accounting firm will complete a thorough analysis of the best river-rafting locations. California, Colorado, and Idaho will be examined as recommended locations. The legal aspects of acquiring, holding, and disposing of real and personal property will be inspected. In addition to, the insurance risks, the impact of identified environmental issues, and whether building or purchasing …show more content…
a permanent structure versus utilizing the mobile home the client currently owns. Based on the results of the firm’s findings, a recommendation will be made regarding the best financially sound, riveting river rafting, and attractive real estate investment location.
Acquiring, Holding, and Disposing of Real Property
“Real property is immovable or attached to immovable land or buildings” (Chessman, 2007).
Buildings constructed on land are the most common commercial real property real estate. The purchase of the real property will give Kaweah surface rights to develop the property as it desires. The Kaweah Family Rafting will acquire real property by purchasing a building, operator as a sole-owner, and register the business as a Limited Liability Company to minimize personal liability, minimal start-up cost, and yet still take advantage of the maximum tax benefits. Holding the title will allow Kaweah to hold the title of the property as a freehold estate under the estates in fee-fee simple, and the owner is free to use the property as he or she sees …show more content…
fit.
The freehold estate and LLC registration will blind greatly.
According to the SBA: Limited Liability Company, the acquiring an operating agreement will provide smooth operational rules for the structure of the LLC’s finances and organization, including percentage of interest, profit and loss allocation, rights of responsibility, and the posting of license and permits. The benefits of holding real property as an LLC is the members are protected from personal liability from business decisions or actions, meaning that if the LLC incurs debt or sued the owners personal assets are exempt, however the business is not relinquished from liability.
Idaho and Colorado are both seasonal locations, and acquiring a river rafting company in sunny Southern California will allow the river rafting company to operate year-around. Acquiring real property instead of just leasing the land minimizes the owner of the surface rights from greatly increasing the lease amount once the business is up and going at the renewal of the lease, or owner forcing the business to move because the owner of the surface right are selling the land. Each state charges a fee just for holding an LLC. California charges $800 a year whether profitable or not plus, and a maximum of $12,590 depending on the net income bracket. Colorado takes 4.63% of the LLC’s net income, and Idaho charges a flat rate of 7.4% of the net income plus a minimum a $20 excise charge. Purchasing the land also allows the owner to dispose of the property through the sell or conveyance of transferring the property through a real estate agent or broker; or gifting it. The property can also be left to an inheriting. The most unfavorable disposal would be through a tax sale or adverse possession (SBA: Limited Liability Company).
The property tax of each location should be calculated. Each location will have a different tax rate, California most likely the highest. Acquiring real estate commercial real estate will require assessing how much will be paid in taxes after the purchase price, down-payment, mortgage payment, added closing cost, and any additional fees agreed upon fees such as the title search fee, legal fees, recordation fees, abstract fees, etc. These taxes are also known as tax basis or cost basis taxes, which are the taxes to acquire property. Holding taxes will solely depend on tax rate surrounding the indicated tax lines. Taxes paid on the disposal of property are figured after calculating capital gain, capital improvements, and depreciation deductions (Huffington Post, 2014).
Acquiring, Holding, and Disposing of Personal Property
Kaweah’s decision to acquire a building opposed to using the mobile home, personal property of the owner that is a movable fixture that can be taken anywhere was made analyzing the financial and accounting benefits of real property. Acquiring, holding, and disposing of personal property will be a constant of Kaweah Family Rafting. Many of Kaweah assets will consist of rafts, boats, kayaks, paddles, pumps, waterproof neoprene clothing, cameras, wetsuits, and dry bags, etc. Rafting equipment will be used extensively, must be depreciated, high wear and tear and disposition. Selling a river-rafting company can be complicated because the specified business use and deciding to whether or not to include personal property, such as the rafting equipment in the sales contract.
Business Use of Insurance and Various Risks
Insurance risks and costs vary from state to state. Considering this is a small business, and river-rafting related injuries are likely, the owner must be made aware of the various costs that will increase overhead. California requires an LLC to carry a minimum personal liability insurance of $500,000, and a maximum of $5,000,000. Idaho is a no fault state, and does not require insurance, however an individual can sue for up to $250,000 in punitive damages, and it is recommended that small business carry liability insurance of $500,000 to $1 million. Colorado requires a minimum personal liability insurance of $25,000 personal for bodily injury, $50,000 per accident for bodily injury, and $15,000 per accident for property damage. Colorado also has a commercial umbrella insurance designed to kick in and provide additional coverage if the personal liability insurance is depleted.
Insurance liability and employee injury risks must also be examined.
The river rafting tours will require and other events will require tour and safety guides, and the assistance of lifeguards, which heightens the possibility of employee injuries. The increase of employee risks could require workers’ compensation insurance. Each state has different mandates regarding workers’ compensation. Idaho requires worker’s compensation on all employees regardless of the business size. The employer is required to carry $100 per payroll per employee regardless if the employee is full time or part time. California requires workers’ compensation insurance on all business with more than five employees. It is up to the employer if they have the financial capability of being self-insured or using a third party insurance company. Colorado requires that all public and private employers in Colorado, with limited exceptions, must provide workers ' compensation coverage for their employees if one or more full or part-time persons are employed. Employers can choose from 200 private insurance
sectors.
Other insurance that should be looked at to protect the company and minimize loss is equipment insurance, such as insurance against river rafting equipment damage, and property insurance against floods; and earthquake if located in California.
Issues Involving White Water Rafting
While white water is a lucrative business, but there are impacts of environmental and other issues with this type of business such as river crowding and congestion, participant safety, environmental and economic impacts. Crowding and congestion are the major recreation management problems in the river corridor and have increased by commercial use. There are precautionary measures participants must follow where safety and rescue procedures are reviewed along with a life jackets and helmets.
The environmental impact some rivers presently have are regulations restricting the daily/annual operating times or numbers of rafters. Rafting contributes to the economy of in by protecting our rivers such as hydroelectric power, irrigation and other developments.
Conclusion
Based upon the analysis of legal aspects, acquiring, holding and disposing of real/personal property, insurance risks and environmental issues the accounting firm recommends The Kaweah Family Rafting to acquire real property by purchasing a building operating as a LLC in California.
.
References
Cheeseman, Henry R. (2007). Business Law: Legal Environment, Online Commerce, Business
Ethics, and Interpersonal Issues, 6e. Prentice Hall, Inc., A Pearson Education Company.
Phil Jemmet, CEO (January 23, 2014). Huffington Post: Business, Determining Tax Basis on
Your Commercial Real Estate. Breakwater Equity Partners. http://www.huffingtonpost.com/phil-jemmett/determining-tax-basis-on-_b_4262861.html SBA-U.S. Small Business Association: Limited Liability Company. Retrieved from https://www.sba.gov/content/limited-liability on November 29, 2014.