ch9tax1 - Taxation of Business Entities Chapter9...

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Chapter 9 Corporations: An Introduction Taxation of Business Entities
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C9 - 2 Outline Non-tax Issues Regarding Entity Choice Taxation of Corporate Operations Dividend received deduction Organizational expenses Start-up costs Procedural Issues Reconciliation of Book Income to Taxable Income (M-1)
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C9 - 3 Nontax Issues in Selecting Entity Form Liability Sole proprietors and some partners have un limited liability for claims against the entity Capital-raising Corporations and partnerships can raise large amounts of capital for entity ventures Transferability Corporate stock is easily sold, but partners must approve partnership interest transfer
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C9 - 4 Nontax Issues in Selecting Entity Form Continuity of life Corporations exist indefinitely Centralized management Corporate actions are governed by a board of directors Partnership operations may be conducted by each general partner without approval by other partners
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C9 - 5 Limited Liability Companies (LLC) LLCs have proliferated since 1988, when the IRS ruled it would treat LLCs as partnerships. Major nontax advantage Allows owners to avoid avoid unlimited liability Major tax advantage Allows qualifying business to be treated as a partnership for tax purposes
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C9 - 6 Check-the-box Regulations Allows taxpayer to choose tax status of unincorporated entity without regard to corporate or non-corporate characteristics. Entities with > 1 owner can elect to be classified as partnership or corporation. Entities with only 1 owner can elect to be classified as sole proprietorship or as corporation.
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C9 - 7 C Corporation Separate tax-paying entity.
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