1. What are some non-tax considerations that should be taken into account in determining whether to operate a business as a partnership or corporation?
There are couple things other than tax that need to be considered before staring a business. In a partnership, the owners are personally liable for the partnership’s debt, which means if the assets within partnership could not satisfied, owners are responsible for the remaining balance. However, owners of a corporation are generally not liable for the corporation’s liability. The ownership is easier to be transferred or sold to the other party in a corporation than in a partnership. Moreover, corporations will continue in business upon the death of shareholders. In a corporation, the company is liable for the unemployed insurance; however, the partnership is not responsible for this. In addition, generally, it will cost less to start …show more content…
Barbara owns 40% of Partnership A and 40% of C Corp B. Each entity has $100,000 of net taxable income. Neither entity makes any distributions. What are the tax consequences to Barbara from each of her investments? Will either entity have to pay tax for the year? If so, how much assuming a 35% tax rate?
Since partnership A has $100,000 net taxable income, and Barbara owns 40% of the partnership, therefore, Barbara’s gross income before tax should be $4,000. Base on the tax regulation, partners of a partnership need to fill out form 1065, with the 35% tax rate on Barbara’s $4,000 tax basis income, she needs to pay for $1,400 tax from the partnership A. C Corp. B also has $100,000 net taxable income, and the corporation needs to pay 35% of the tax, which is $35,000 however, without divided distributing, Barbara’s tax basis income won’t be impacted.
3. Janice is an 80% owner of Java. Java has $100,000 of ordinary income, $20,000 of long-term capital gain and $10,000 of charitable contributions. How do Janice and Java treat these items if Java is a C Corporation? If Java is a