Bob is a movie start earning millions of dollars last year as an actor. He is...

Bob is a movie start earning millions of dollars last year as an actor. He is also a 40% active owner in a nightclub business. He participates in the management and whenever he is available Bob performs playing clarinet at the club once a weekend. Last year (2019) the nightclub earned $100,000 after paying all bills including paying the owners fair compensation for their services. However the nightclub did not pay any of this income out to the owners.

What tax or taxes must Bob pay due to his ownership if the business was organized as a) a partnership b) an S Corporation or c) a C Corporation

Expert Solution

Taxes Bob would pay due to his ownership in the business in different scenarios is as follows

1) Partnership- In case of partnership, the partnership themselve is not charged to any taxes instead the partners in the firm pay taxes on the share of income received from the partnership. So the remuneration Bob earns i.e his movie earning, performance at nightclub and the earning from partnership will be taxed through his personal tax return.

2) S Corporation- S Corporation is similar to partnership. The income and expenses earned through the entity will be taxed to the owner personal tax return though they file a separate informational federal return. The advantage of S corporation is it provides the owner the limited liability protection against business creditors.

3) C Corporation- C Corporation is a separate taxable entity. Hence Bob will pay tax for the income earned from the movie and performance at nightclub through his personal tax return and the income earned from the nightclub will be paid through C corporation return.

ekkarill92 answered 1 year ago

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