Question

Which of the following statements is CORRECT?

a. Sole proprietorships are subject to more regulations than corporations.

b. One of the disadvantages of incorporating a business is that the owners then become subject to liabilities in the event the firm goes bankrupt.

c. Corporations of all types are subject to the corporate income tax.

d. Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones.

e. In any type of partnership, every partner has the same rights, privileges, and liability exposure as every other partner.

Answer 1

D. Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones.

The federal individual income tax has seven tax rates ranging from 10 percent to 37 percent. The rates apply to taxable income i.e. total gross income after deducting the allowable standard deduction. Federal income tax rates follow the increasing pattern, as the taxable income increases, higher the tax rates are charged. The Federal income tax also allows single filling and joint filling for married couples.

Partnership Taxation, for purposes of the U.S. Federal income tax, has been given under sub-chapter K of Chapter 1 of the U.S. Internal Revenue Code. Partnerships are designated as flow-through entities. Under the system of Flow-through taxation the entity does not pay taxes on its income, instead, the partners/owners of the firm pay tax on their share of the entity's taxable income, even if no funds are distributed by the partnership to the partners. Federal tax law gives open hands to the partners of the entity to agree how the income of the entity will be allocated among them.

In Regards to the Corporate Tax, Corporate tax is levied in the United States at the federal, most state, and some local levels on the income of entities treated for tax purposes as corporations. Since January 1, 2018, the nominal federal corporate tax rate is a flat 21% after the passage of the Tax Cuts and Jobs Act, 2017 by the Trump Administration. Like individuals, corporations must file tax returns every year. They must make quarterly estimated tax payments i.e. Advance Tax, Groups of corporations controlled by single owners may file a consolidated return.

Considering, the above explanation, it can said that, corporates have a complex nature of tax structures and various guidelines to be followed compared to the sole proprietorships and partnership, Sole proprietorships and partnerships generally have a tax advantage over many corporations, especially large ones.