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Federal Taxation Week 9 Assignment

Week 9 Assignment Advanced Taxation Strayer University ACC317
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  Running Head: PARTNERSHIP VS. CORPORATION 1 Week 9: Partnership vs. Corporation Leah M. Pasternak Dr. Jan D. Felton Federal Taxation June 4, 2014  Partnership vs. Corporation 2 Partnership vs. Corporation Compare and contrast the advantages and disadvantages inherent in electing to become a partnership and a corporation. Indicate key aspects in which the resulting choice is likely to impact tax obligations. To be or not to be, that is always the question. The decision on whether to elect on  becoming a partnership or a corporation is something that every company must decide on. There are inherent advantages and disadvantages to each, and these are outlined below. There are some differences in personal liabilities in a corporation and a partnership. In a corporation, a shareholder may only be held liable for any amount that they may have invested in the corporation (Quick MBA, 2010). In a partnership, a partner may be held liable for any and all amounts invested by all parties. Within a partnership, management decisions are handled within and by the partners, and within a corporation the management decisions are made by the board of directors who are elected on by the shareholders. A partnership is not required by law to take notes from their meetings, but a corporation is required to take notes, or meeting minutes (Quick MBA, 2010). This creates an administrative cost for the corporation that the partnership typically does not incur. Of course, these differences between a partnership and a corporation also bring about also  bring about tax differences as well. Within a partnership, the taxes are divided equally amongst the partners to pay the company’s taxes. A corporation is a bit different. The income taxes are  paid by the corporation, and each shareholder within the corporation is required to pay taxes on the dividends that they have received. This is topically called the double taxation effect. If a company were to choose to be an S Corporation they would be considered a pass-through entity  Partnership vs. Corporation 3 and therefore are not required to pay corporate taxes. For this reason, the tax liability would be less by choosing to be a partnership or an S Corporation. Imagine that you are a Partner at Walk Upright Company. Justify to your team why you elected to become a partnership in an effort to minimize tax liability. Prepare a response to the objection that this election was the best choice. Choosing a partnership for our company Walk Upright was one of the best decisions we could have made. There are many reasons why Walk Upright Company is best handled under a  partnership than any other type of business. The ease of creating the company under a  partnership was a perk. We saved money on state filings as well as other administrative costs that are needed when creating a corporation. We paid no state fees, no filing fees and no franchise taxes (BizFilings, 2013). The only expenses we paid for were our business license and permits required in order for us to operate our business. We have superior structural flexibility with our company. We also have very few ongoing requirements that we must follow now that we have Walk Upright Company. We are not required to hold annual meetings, we do not need to keep  personal assets separate from business assets and we are not required to issue partnership interest (Latham, 2013). Another perk to us having a partnership instead of a corporation is that we only experience one level of taxation. We are never required to pay corporate taxes, and we do not suffer from the double taxation that all corporations experience. Instead, we experience pass-through taxation. That is, our company taxes our viewed as an extension of us, the owners for tax  purposes. We are also able to allocate the income and loss that Walk Upright Company experiences, any way we see appropriate. We also have the ability to make ccontributions to and distributions from a partnership without any income tax consequence whereas a corporation only  Partnership vs. Corporation 4 experiences tax free if the transferors are in control of the company after the exchange (BizFilings, 2013). We also do not have to calculate or pay any estimated taxes, as corporations do. Imagine that you are the Chief Financial Officer (CFO) at No More Ice, Inc. Justify to your management team why you elected to become a corporation. Our company, No More Ice, Inc. has much greater benefits of being a corporation for several different reasons. First of all, our total assets reach well over $2,000,000 and we have many different taxation rules and regulations we must follow. We also own 85% of Voltage, Inc. so being a corporation has lesser tax liabilities than if we were a limited liability company or a  partnership. Our total income also exceeds $1,000,000, so being a corporation is more beneficial than not. Even though we are subject to the double taxation rule, we still experience great flexibility with our taxes. We are able to use income shifting in order to obtain lower tax  brackets. We are also able to offer corporate benefits such as retirement and medical. We also experience no limits or restrictions on the amount of capital or the operating losses that No More Ice may carry back or forward to subsequent tax years; something that a partnership is not able to appreciate. For our  corporation, only the salaries we pay and not our profits are subject to self-employment taxes whereas companies such as a sole proprietorship experience these types of taxes on their earnings as well. This saves us thousands of dollars per year. Determine whether becoming a corporation was a wise choice as a potential strategy to minimize tax liability as a result. Provide support for your rationale. I believe that becoming a corporation was a wise choice to minimize tax liability. No More Ice, Inc. was able to hold their loss on the stock of Leash Corp. as a short-term capital loss,
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