Khalid is a 39-year-old married business owner who runs a dry cleaning service with three locations. His personal obligations are the home that he owns with his wife who works for a well-known insurance company; the health needs of his family; and his commitment toward saving for the future higher education needs of his three children. Khalid knows that two of his locations require a large infusion of cash to pay for new and expensive dry cleaning equipment. Although his wife's job provides the family with health insurance, it also places the family in a higher income tax bracket. Khalid would certainly like to minimize his taxes. Which of the following forms of business ownership would you suggest for Khalid? Khalid should consider:
A) a sole proprietorship due to the fact that it pays its own taxes and it has limited liability.
B) a sole proprietorship due to the fact that it has unlimited liability and it will protect the family's personal assets.
C) a corporation because he can avoid the negative aspect of limited liability. Corporations are always taxed at a lower rate than individuals.
D) a limited liability company because he will only be liable for what he has invested in the business. His personal assets will be protected, and he can be taxed like a sole proprietorship.

Question

Quizplus · Accepted Answer

A limited liability company (LLC) would be the best choice for Khalid. It offers personal liability protection and allows for pass-through taxation like a sole proprietorship. This means Khalid will only be taxed on the profits of the business, and not at the corporate level. Additionally, an LLC allows for flexible management and is relatively easy to set up and maintain. This would provide Khalid with the flexibility and protection he needs to manage his family's obligations and invest in his business.

Khalid Is a 39-Year-Old Married Business Owner Who Runs a Dry