Chapter 2 Corporations - Organization

Chapter 2 Corporations - Organization - Chapter 2...

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Chapter 2 Corporations:  Introduction and Operating Rules
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Various Business Forms/Tax Entities Sole proprietorships Partnerships S corporations Regular corporations (also called C corporations) Limited Liability Companies Trusts and estates
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Business Entities SOLE PROPRIETOR- SHIP C CORPORATION PARTNERSHIP S CORPORATION LIMITED LIABILITY COMPANY LIABILITY ABILITY TO RAISE CAPITAL TRANSFER- ABILITY OF OWNERSHIP CONTINUITY
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Business Entities- Tax Considerations SOLE PROPRIETOR- SHIP C CORPORATION PARTNERSHIP S CORPORATION LIMITED LIABILITY COMPANY TAX PAYING ENTITY? TAX FORM TAX RATES
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Sole Proprietorship Not a separate taxable entity Income reported on owner’s Schedule C
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Partnership Separate entity, but does not pay tax Allocates partnership income to partners Partners report partnership income on personal tax returns Files information return ( Form 1065 )
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S Corporation Separate entity, only pays special taxes (e.g., built-in gains) Allocates entity income to shareholders Shareholders report entity income on personal tax return Files information return ( 1120s )
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C Corporation Separate tax-paying entity Reports income and expenses on Form Form 1120 (or Form 1120-A) Income taxed at corporate level and again at owner level when distributed as a dividend
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Dividends Tax Relief Reconciliation Act of 2003 provides partial relief from double taxation of corporate income Generally, dividends received in taxable years beginning after 2002 are taxed at same marginal rate applicable to a net capital gain Thus, individuals otherwise subject to the 10% or 15% marginal tax rate pay 5% tax on qualified dividends received Individuals subject to the 25, 28, 33, or 35 percent marginal tax rate pay a 15% tax on qualified dividends
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Corporate Income Tax Rates $50,000 or less 15% Over $50,000 but not over $75,000 25% Over $75,000 but not over $100,000 34% Over $100,000 but not over $335,000 39% Over $335,000 but not over $10,000,000 34% Over $10,000,000 but not over $15,000,000 35% Over $15,000,000 but not over $18,333,333 38% Over $18,333,333 35%
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Nontax Issues in Selecting Entity Form (slide 1 of 3) Liability Sole proprietors and some partners have unlimited liability for claims against the entity Capital-raising Corporations and partnerships to a lesser extent can raise large amounts of capital for entity ventures
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Nontax Issues in Selecting Entity Form (slide 2 of 3) Transferability Corporate stock is easily sold, but partners must approve partnership interest transfer Continuity of life Corporations exist indefinitely
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Nontax Issues in Selecting Entity Form (slide 3 of 3) Centralized management Corporate actions are governed by a board of directors Partnership operations may be conducted by each partner without approval by other partners
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Limited Liability Companies (LLC) LLCs have proliferated since 1988 when IRS ruled it would treat qualifying
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Chapter 2 Corporations - Organization - Chapter 2...

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