mgmt200t - December 1, 2009 Entities: For tax purposes, the...

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December 1, 2009 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 entity’s existence. C Corporations Formed by business associates to conduct a business venture and divide profits among investors. o Business venture can be one or more persons. Files a charter or articles of incorporation in a state, in a US possession or with the U.S. 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” ( Toughest tax bite ; Taxed 35%) o Once for Corporate Income Tax. o Taxed again as a dividends to investors when distributed o (Class Notes) Do this to protect themselves.
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Files Form 1120 annually – due 2 ½ months after year end. (after “fiscal” year ends, not calendar year) o Calendar year would be due March 15 th o 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. (Class Notes) Most Important: Offers protection; they can’t take your personal stuff, but only company stuff. S Corporations Can have unlimited number of shareholders Can have multiple classes of stock More paperwork involved with C Corporation than Sole Proprietor. Most abused (b/c you have to set your own wages) Bottom line: has a flow through income, but don’t pay self employment tax. Partnerships have self employment tax. An S Corporation is a corporation that is eligible to choose S corporation status and whose shareholders have all consented to the corporation’s choice. In general, an S Corporation does not pay any income tax. o Instead, the corporation’s income and deductions are passed through its shareholders. o The shareholders then must report the income and deductions on their own income tax returns.
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Files form 1120S annually with same due dates as C Corporations. (acts similar to 1120 (c corp.) but with different tax returns(?)) To the extent the special S Corporation rules do not apply, S corporations are
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This note was uploaded on 02/23/2010 for the course MGMT 20000 taught by Professor Greig during the Spring '10 term at Purdue University-West Lafayette.

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mgmt200t - December 1, 2009 Entities: For tax purposes, the...

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