With respect to the incorporation of a proprietorship earning less than $500,000 of active business income, which of the following statements is correct?

Question

Quizplus · Accepted Answer

Incorporation of a proprietorship earning less than $500,000 of active business income can result in a deferral of taxes to the extent profits can be left in the corporation. This is because corporations are taxed at a lower rate than individuals on their active business income up to a certain threshold. By leaving profits in the corporation, the shareholder can delay paying personal taxes on that income until it is distributed as a dividend or salary. However, there may also be additional costs and administrative burdens associated with incorporation. Option A is incorrect because the tax savings from combining the small business deduction with the dividend tax credit may be offset by increased administrative and compliance costs associated with maintaining a corporation. Option B is incorrect because there may be items that can be deducted by an unincorporated business but not by a corporation. Option D is incorrect because incorporation does not necessarily limit shareholders' obligations to creditors.

With Respect to the Incorporation of a Proprietorship Earning Less