It is important to understand how different corporations are formed and operated
ID: 2715833 • Letter: I
Question
It is important to understand how different corporations are formed and operated, especially as these differences relate to taxation. Provide an example of a corporation, sole proprietorship, partnership, and LLC. Then discuss how taxation is similar and different among those entities. Consider including in your discussion some of the detrimental aspects of the corporate form, such as double taxation. Feel free to share any concerns or questions you may have regarding the different taxation requirements of these entities. It is important to understand how different corporations are formed and operated, especially as these differences relate to taxation. Provide an example of a corporation, sole proprietorship, partnership, and LLC. Then discuss how taxation is similar and different among those entities. Consider including in your discussion some of the detrimental aspects of the corporate form, such as double taxation. Feel free to share any concerns or questions you may have regarding the different taxation requirements of these entities.Explanation / Answer
A sole proprietorship is the simplest business entity and exists if there is 1 owner and nil employees. The business owner gives taxes at the individual tax rate. Also, only a few tax rules apply specifically to sole proprietorships. Sole proprietors file Schedule C, Profit or Loss from Business or the simplified Schedule C-EZ, Net Profit from Business for their tax return
A partnership consists of 2 or more business owners who conduct the business according to the partnership agreement. The partnership does not pay taxes itself; rather, profits, deductions, and other tax related heads pass through to the individual partners, who report those items in their own tax returns. But, a partnership should repost an informational return both to the IRS and to the individual partners.
A drawback of a sole proprietorship or a partnership is that the business owners have full liability for the business. To limit liability, the business owners may form a corporation or a limited liability company. A LLC is usually run as a partnership, wherein the partners are called members, only the assets of the LLC or the assets of any members personally responsible for the liability are subject to the claims of creditors.
In variation to a partnership, LLC, a C corporation is an independent entity that files and pays its own taxes. The most essential advantage of a C corporation is its ability to raise money by selling shares to investors
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