Assume you plan to start a new enterprise; you know the probability of having losses for the first three years of operations is almost 90 percent, and you know you will report a substantial amount of income from other sources during those same three years. From a tax perspective, which of the following entity choices would not allow you to offset the entity losses against your income from other sources?
A)C corporation.
B)Limited partnership
C)General partnership.
D)S corporation.

Question

Quizplus · Accepted Answer

A C corporation would not allow you to offset the entity losses against your income from other sources. C corporations operate as separate legal entities from their owners, and any losses incurred by the corporation can only be offset against future profits of the corporation. Therefore, if you plan to report a substantial amount of income from other sources during the first three years, you would not be able to use those losses to offset your income if you choose to start a C corporation. Limited partnerships, general partnerships, and S corporations, on the other hand, are pass-through entities that allow the losses to be reported on the owners' individual tax returns and used to offset income from other sources.

Assume You Plan to Start a New Enterprise; You Know