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of Estimated Tax of Individuals, the IRS will give you vouchers, which will have estimated tax payments due in January, April, June and September. Other disadvantages include having to pay all payroll taxes, all state and city income taxes if applicable where you live (“The pros and,” n.d.). The tax advantages of a partnership are that like a sole proprietorship they are pass through entities for tax purposes, income, deductions and credits flow through to the owners retaining their character. This also means there is no corporate level of taxation. Partnerships also offer superior structural flexibility compared to corporations. Partnerships can split ownership, voting and income rights in just about any manner they see fit. Section 704(a) of the Internal Revenue Code provides that all income, gains, loses, deductions or credits be allocated to partners based on the partnership agreement. Section 704(a) requires, however, that the allocation of income
and loss have substantial economic effect. In other words, the partners can choose to allocate income and loss in any manner they see fit provided that they are not doing so solely to reduce the individual partner’s tax liabilities (Podraza, 2011.). Tax disadvantages of a partnership include like a sole proprietorship, they encounter self-employment taxes as well as the payroll, city and state taxes that may be applicable (“Partnership advantages and,” n.d.).The tax advantages of an S Corporation are just like a sole proprietorship and a partnership, they are a pass through entity as well, so there is no corporate level of taxation involved with an S Corp either. Another advantage is that there is only one tax filing a year as opposed to a C Corp which needs to file quarterly. Another advantage is payroll tax savings because all profit is extracted as salary, but the payroll taxes only apply to the portion of income actually earmarked as salary for S Corp shareholder employees (Nelson, n.d.). The tax disadvantages include that a corporate return must now be filed and if you are not an experienced accountant you may not know how to accomplish this return.Tax advantages of a C Corporation are a possible tax savings depending on the amount of profit the corporation makes and your individual tax bracket. As seen in the corporate tax rate schedule on page 17 of Form 1120, the IRS taxes different levels of profit at different rates, which a lot of times is much lower than individual rates. It is also possible to funnel funds back into the company normally at a lower rate than for an individual because under the other 3 structures you would need to pay taxes on it at an individual level before being able to dump it back into the company, whereas with a C Corp you can retain the earnings for future growth. Also the C Corp can have more tax savings when it comes to salaries and bonuses because on the corporate end it can be deducted, furthermore the company can pay the employees enough so that no taxable profits remain as long as they are in line with reasonable salary measurements as outlined by the
IRS. Also, as long as the company makes fringe benefits equally available to all employees, not