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Business Taxation

The document discusses different types of business organizations and their taxation methods. It compares pass-through taxation versus double taxation, explaining how earnings and tax liabilities are treated for different entities like partnerships, LLCs, C corporations and S corporations. It also provides requirements to qualify as an S corporation.

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alecbonerz
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25 views8 pages

Business Taxation

The document discusses different types of business organizations and their taxation methods. It compares pass-through taxation versus double taxation, explaining how earnings and tax liabilities are treated for different entities like partnerships, LLCs, C corporations and S corporations. It also provides requirements to qualify as an S corporation.

Uploaded by

alecbonerz
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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BUSINESS ORGANIZATIONS

Business Taxation
Operation:
Funding control &
management

Factors in
Formation
choosing Taxation

a business
organization

Termination
Liability
Transfer of
interest
Comparative Taxation Methods

Pass Through Taxation Double Taxation

The business entity does not pay The business entity pays taxes on
taxes on its earnings. its earnings.

Instead, the owners are taxed at And, the owners pay taxes at their
individual tax rates on their individual tax rates on profits
proportionate share of business distributed to them.
income.
Comparative Taxation Methods
Pass Through Taxation Double Taxation
Company Earnings $10.00 $10.00
(To be given to owner)

Company’s Tax Rate 0% 21%

Company’s Tax Liability $10.00 x 0% = $0.00 $10.00 x 21% = $2.10

Company Now Has This $10.00 $7.90


Amount To Distribute
Owner’s Tax Rate 32% 20%
(Assume Taxable Income (Assume Dividend is a Qualified
of $200K) Dividend))

Owner’s Tax Liability Upon $10.00 x 32% = $3.20 $7.90 x 20% = $1.58
Receiving the Distribution

Effective Amount of $10.00 – $3.20 = $6.80 $7.90 - $1.58 = $6.32


Distribution Owner Receives
Types of Taxable Entities
Taxable Entities Pass-Through Entities

C Corporations Partnerships

S Corporations

LLCs
What are C and S Corporations?

These are federal tax law designations for corporations.

• A C corporation refers to any corporation that is taxed separately from its owners.

• For-profit corporations are automatically classified as C corporations unless the


corporation elects to treat the corporation as a flow-through entity known as an S
corporation.

• An S corporation is not itself subject to income tax; rather, shareholders of the S


corporation are subject to tax on their pro rata shares of income based on their share
ownership.
Requirements to Qualify as an S Corporation

• Be a domestic corporation
• Have only allowable shareholders
• Individuals, certain trusts and estates
• May not include partnerships, corporations or non-resident alien
shareholders
• Have no more than 100 shareholders
• Have one class of stock

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