Question

1. How are taxes handled for a(n) C-Corp, S-Corp, LLC, Partnership, Sole Proprietorship?

2. What is the financial risk for an LLC?

Answer 1

C-Corp is also called the regular corporation,when it comes to tax considerations the C Corp is required to pay the corporate income tax.The amount will be determined on the basis of tax rates.Another thing to keep in mind when it comes to tax in a C Corp context is fact that there is chance for double taxation.In double taxation the income earned by the company is first taxed and when the dividend which is an income to its owners will be taxed .

S-Corp also referred to as a small business corporation does not have to pay corporate income taxes.The income from an S-Corp is subjected to pass through taxation and thereby eliminates the chance of double taxation.In an S-corp the business and owners are considered to be separate.

LLC(Limited Liability Company)When it comes to LLC's their income is subjected to pass through taxation .As a result the company does not have to pay taxes on the income generated by itself ,the owners of the company however will have to file tax on the income(from LLC) on an individual basis.

Partnership is not taxable under federal law.The income from it will be reported as distributed to its owners and the owners will then be subjected taxes based on their individual rates.

Sole Proprietorship:In a sole proprietorship the income from the business will be treated as belonging to the owner and taxed on a personal basis.The business is not taxed separately.

2.Financial Risk(caveats) of an LLC

The Limited Liability Company protects the owner and the assets of the owner from legal obligation with regard to the debts of the LCC.However LLC does have it's hsre of risks(caveats).LLC's require their owner to pay an annual fee to the stste,The owners of the LLC cannot issue stock to raise money for the LLC as a result this constrains the growth potential of the LLC.Another caveat of llc is that the pass through taxation that the LLC income is subject to might create a cash flow crisis to the owners.