Intro to Choice of Business Form (Class) Flashcards
What are the essential ingredients of every business?
Money, capital, property and people to perform services
What is a sole proprietorship?
A one-person business
How is the tax treatment structured for a sole proprietorship?
The owner is taxed on their taxable income at a max rate of 37%, generally at 30% on business income
In a general partnership, how is income allocated?
50/50 among the owners
What is the tax status of a general partnership?
The partnership itself does not pay taxes; income is taxed on the owners’ share
What is the liability status of sole proprietorships and general partnerships?
Unlimited liability for owners
What is the primary benefit of a C Corporation?
Limited liability for shareholders
What is the corporate tax rate for C Corporations?
21%
What is double taxation in the context of a C Corporation?
Taxation of corporate income and taxation of dividends distributed to shareholders
What is an S Corporation?
A corporation taxed similarly to a partnership
What tax rate applies to owners of an S Corporation?
30% on taxable income
What is a Limited Liability Company (LLC)?
A creation of state law that confers limited liability among its members
How is an LLC taxed?
Under the general partnership regime
What happens to the taxation status of a single-member LLC?
It is treated as a sole proprietorship
What tax implications arise when selling a business structured as a C Corporation?
Double tax burden close to 40%
What is the tax rate on capital gains for S Corporations or LLCs?
20%
What is the formula for calculating earnings?
Revenue - Expenses = Earnings
True or False: C Corporations are generally favored for tax purposes.
False
Fill in the blank: The ideal world would have a tax forum that taxes all business forms _______.
[alike]
What determines the choice of business form?
The most attractive regime
