Rachelle owns a business with her brother, Ryan. Last year their company earned a profit of $200,000. Which type of business do they own if Rachelle paid taxes on her $100,000 share on her individual tax return?

Question

Quizplus · Accepted Answer

Partnerships with pass-through taxation means that the profits or losses of the partnership are divided among the partners who then report it on their individual tax returns. This is consistent with Rachelle paying taxes on her share of the profit on her individual tax return. Option B is incorrect because corporate taxation means the business pays taxes on its profits, not the individual partners. Option C is incorrect because partners pay taxes on their individual share of the profits, not just on dividends. Option D is incorrect because corporations have separate legal entities from their owners, so the owners (shareholders) pay taxes on their dividends and capital gains, not on their initial investment in the company.

Rachelle Owns a Business with Her Brother, Ryan