Instructor%20Notes%20-%20Differences%20in%20Entities

Instructor%20Notes%20-%20Differences%20in%20Entities -...

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Unformatted text preview: Management 200T Differences in Entities (for Tax Purposes) Entities For Tax Purposes, the predominant forms of business enterprise are C Corporations, S Corporations, Partnerships, Limited Liability Companies (LLCs) and Sole Proprietorships. To choose among these is to choose among significant differences in Federal Income Tax Treatment. Many Internal Revenue Codes apply to all of these entities, but some areas are specially tailored for each type. The classification of an entity will have a lingering tax impact throughout the entitys existence. C Corporations Formed by business associates to conduct a business venture and divide profits among investors. Files a charter or articles of incorporation in a state, in a US possession or with the US government. Prepares by-laws, has its business affairs overseen by a board of directors and issues stock C Corporations are subject to the toughest tax bite. Earnings are double taxed Once for Corporate Income Tax Taxed again as a dividend to investor when distributed Files Form 1120 annually due 2 months after year end Calendar year would be due March 15 th . Management 200T Differences in Entities (for Tax Purposes) April 30 th year end would be due July 15 th . Can have unlimited number of shareholders. Can have multiple classes of stock. More paperwork involved with C Corporation than Sole Proprietor. S Corporations An S Corporation is a corporation that is eligible to choose S Corporation status and whose shareholders have all consented to the corporations choice. In general, an S Corporation does not pay any income tax. Instead, the corporations income and deductions are passed through to its shareholders. The shareholders then must report the income and deductions on their own income tax returns. Files From 1120S annually with same due dates as C Corporation. To the extent the special S Corporation rules do not apply, S Corporations are governed by the regular or C Corporation rules. Thus, the taxation of income earned by, and the allocation of losses incurred by, S Corporations closely parallels the taxation of partnerships with respect to items of partnership income and loss. Management 200T Differences in Entities (for Tax Purposes) S Corporation is somewhat of a hybrid entity because of the previous two points. To become an S Corporation, an organization must be a small business corporation. All of the following requirements must be met: Must be a domestic corporation that is organized under the laws of any state or US territory The corporation may have as shareholders only individuals, estates or certain trusts. Partnerships and corporations cannot be shareholders....
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This note was uploaded on 04/18/2008 for the course MGMT 200T taught by Professor Purdum during the Fall '08 term at Purdue University-West Lafayette.

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Instructor%20Notes%20-%20Differences%20in%20Entities -...

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