Chapter 15 - Chapter 15 ComparativeFormsofDoingBusiness...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 15 Comparative Forms of Doing Business Choice of Form of Business Entity Many factors affect the choice of business entity o Both tax and nontax o Understanding the comparative tax consequences related to the different types of entities is important for effective tax planning Principal Forms of Doing Business Sole Proprietorship Partnership C corporation S corporation Limited liability company (LLC) Limited Liability Company (LLC) Hybrid business form that combines the corporate characteristic of limited liability for owners with tax characteristics of a partnership Filing Requirements Sole Proprietorship Files Schedule C, Form 1040 Files Form 1065 C Corporation Files Form 1120 S Corporation Files Form 1120S Nontax Factors—Capital Formation Sole Proprietorship Limited ability to raise capital Partnership Can raise funds through pooling of owner resources Ltd. p’ship can raise capital from investors C Corporation Greatest ease and potential for raising capital S Corporation Greatest ease and potential for raising capital, but limited number of investors Nontax Factors—Limited Liability Sole Proprietorship Unlimited liability Partnership General partners are jointly and severally liable
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Ltd. partners’ liability is limited to investment C Corporation Generally have limited liability S Corporation Generally have limited liability Other Nontax Factors Estimated life of business Number of owners and their roles in management of the business Freedom of choice in transferring ownership interests Organizational formality and related costs Single vs. Double Taxation Sole Proprietorship Single taxation Partnership and LLC Single taxation C Corporation Double taxation S Corporation Generally, single taxation May be subject to built-in gains tax and passive investment income tax Alternative Minimum Tax Sole Proprietorship Directly subject to AMT Partnership and LLC Indirectly subject to AMT AMT adjustments & preferences flow through and partners subject to AMT C Corporation Directly subject to AMT May have advantage here since corp AMT rate is only 20% S Corporation Indirectly subject to AMT AMT adjustments & preferences flow through and S/H’s subject to AMT Controlling the Entity Tax Various techniques can be used to control the tax liability, whether imposed on the entity or owners, such as: o Distribution policy o Utilization of special allocations o Fringe benefits o Minimizing double taxation
Background image of page 2
Minimizing Double Taxation of C Corporations Several techniques are available for reducing the double taxation of C corps including: o Making distributions to shareholders that are deductible by corp o Retaining earnings at corp level o Making distributions treated as a return of capital o Making the S corp election Deductible distributions include: o Salary payments to shareholder-employees
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/04/2010 for the course ACC 410 taught by Professor Su during the Spring '10 term at University of Nevada, Las Vegas.

Page1 / 9

Chapter 15 - Chapter 15 ComparativeFormsofDoingBusiness...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online