The Importance of Tax in an Individual's Life
Individual Tax Research and Planning
Midterm
Chapter 1
20. Discuss what is meant by the term “double taxation” of corporations. Develop an example of double taxation using a corporation and shareholder. The term “double taxation” refers to the taxing of the same income twice. This type of taxation typically results from a C corporation paying tax on its taxable income and shareholders paying income tax on any dividends received from the C Corporation. The impact of double taxation of C corporations has been substantially reduced by the fact that since 2003, dividends are taxed at a maximum rate of 15%. The most well-known example of double taxation in the U.S. is the income tax levied once on corporate income and then again when profits are distributed as dividends to shareholders.
21. Limited liability companies (LLCs) are very popular today as a form of organization. Assume a client asks you to explain what this type of organization is all about. Prepare a brief description of the federal income tax aspects of LLCs. A Limited Liability Company or LLC is a legal form of business organization with daily activities like a partnership but with limited liability similar to a corporation. An LLC is formed in the state in which it operates. An LLC is formed by filing Articles of Organization with the state in which you will be doing business. Limited liability companies (LLCs) are generally taxed as partnerships. Therefore, the LLC is not subject to income tax on its taxable income but such income is allocated to the members (owners) of the LLC..
23. Partnerships and S corporations are flow-through entities. In connection with filing annual tax returns, these entities must include Form K-1 in the returns. What is Form K-1, what is its purpose, and who receives the form? Form K-1 is an integral part of the annual partnership tax return. It reports a partner’s allocable share of
Midterm
Chapter 1
20. Discuss what is meant by the term “double taxation” of corporations. Develop an example of double taxation using a corporation and shareholder. The term “double taxation” refers to the taxing of the same income twice. This type of taxation typically results from a C corporation paying tax on its taxable income and shareholders paying income tax on any dividends received from the C Corporation. The impact of double taxation of C corporations has been substantially reduced by the fact that since 2003, dividends are taxed at a maximum rate of 15%. The most well-known example of double taxation in the U.S. is the income tax levied once on corporate income and then again when profits are distributed as dividends to shareholders.
21. Limited liability companies (LLCs) are very popular today as a form of organization. Assume a client asks you to explain what this type of organization is all about. Prepare a brief description of the federal income tax aspects of LLCs. A Limited Liability Company or LLC is a legal form of business organization with daily activities like a partnership but with limited liability similar to a corporation. An LLC is formed in the state in which it operates. An LLC is formed by filing Articles of Organization with the state in which you will be doing business. Limited liability companies (LLCs) are generally taxed as partnerships. Therefore, the LLC is not subject to income tax on its taxable income but such income is allocated to the members (owners) of the LLC..
23. Partnerships and S corporations are flow-through entities. In connection with filing annual tax returns, these entities must include Form K-1 in the returns. What is Form K-1, what is its purpose, and who receives the form? Form K-1 is an integral part of the annual partnership tax return. It reports a partner’s allocable share of