Question

Explain to a business owner who doesn't understand tax, in 3-5 sentences. Give examples and expand where necessary.

Explain the taxation of a partnership and the partners.

Explain the taxation of an S-Corporation and the shareholders

Answer 1

Direct Tax is a part of your own income which you earn for the government. You are liable to pay when you earn income but different countries have different laws with regard to tax payment.

The partnership is a type of business organisation where two or more persons join to do business or profession. There are different type of partnership like General Partnership, Limited Liability Partnership etc. The partnership is considered a separate entity for taxation purposes, so partnership pays tax on its business and partners to pay tax on their all income including any salary received from the partnership.

The S-Corporation is a type of company owned by a small group of persons.S-Corporation pays no tax directly to government but income or loss is transferred to shareholders. Now, Shareholders pay tax on their individual income tax returns including income of S-Corporation and their other individual income.