Olivia and Liam have heard complaints from fellow business owners about the tax burden they face due to their company’s business structure. What form of business ownership may involve double taxation? (1 point) Responses Sole proprietorship Sole proprietorship Partnership Partnership Corporation Corporation S corporation
The form of business ownership that may involve double taxation is a Corporation.
The form of business ownership that may involve double taxation is the "Corporation."
The form of business ownership that may involve double taxation is the corporation.
To confirm this, we can break down the options and explain their tax implications:
1. Sole proprietorship: In a sole proprietorship, the business and the owner are considered the same entity for tax purposes. This means that the owner reports business income and expenses on their personal income tax return, and there is no separate business tax. Therefore, there is no double taxation.
2. Partnership: Similar to a sole proprietorship, a partnership does not involve double taxation. In a partnership, the income, expenses, and taxes are distributed among the partners based on their ownership shares. Each partner reports their share of the partnership's income and expenses on their personal tax return.
3. Corporation: When it comes to corporations, they are considered separate legal entities from their owners. Corporations file their own tax returns and are subject to corporate income tax rates. If the corporation distributes profits to its shareholders in the form of dividends, these dividends are also subject to personal income tax when received by the shareholders. This results in double taxation since the corporation pays taxes on its profits, and the shareholders pay taxes on their personal income, including the dividends received.
4. S corporation: An S corporation is a specific type of corporation that offers certain tax benefits. It allows the business income, losses, deductions, and credits to flow through to the shareholders' personal tax returns, similar to a partnership. While S corporations avoid double taxation at the corporate level, they still need to follow specific guidelines and restrictions regarding eligibility and the number of shareholders.
Considering the explanations above, the option that involves potential double taxation is the corporation.