A number of tax and nontax factors should be considered in choosing the type of

Question

A number of tax and nontax factors should be considered in choosing the type of passthrough entity through which to operate a new business. For each of the following considerations, indicate whether the item favors the partnership form or the S corporation form of passthrough entity and why.

a. State taxes, including franchise tax and potential entity-level income taxes.

b. Flexibility of income and loss sharing arrangements.

c. Complexity in the application of the relevant tax statutes.

d. Liability for self-employment tax on allocable shares of the entity’s ordinary business income.

Explanation / Answer

Option.a)State taxes, including franchise tax and potential entity-level income taxes-favors the partnership.

Thanks

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