Greg and Samantha plan to establish a business in which they will both materially participate.They are both in the 32% marginal tax bracket.Although they expect the business to be very successful in the long-run, they project losses of approximately $100,000 for each of the first five years.Due to potential environmental concerns, limited liability is very important for the owners.Which form of business entity should they select considering both tax and nontax factors?
A)General partnership
B)Limited partnership
C)S corporation
D)It makes no difference; any of the above should satisfy Greg and Samantha.

Question

Quizplus · Accepted Answer

An S corporation provides both the benefit of limited liability, protecting Greg and Samantha's personal assets from potential environmental concerns related to the business, and allows for the pass-through of losses. This means they can use the business losses to offset other income on their personal tax returns, which is beneficial given their 32% marginal tax bracket. General partnerships do not offer limited liability, and while limited partnerships do, limited partners cannot actively participate in managing the business.

Greg and Samantha Plan to Establish a Business in Which