John Brown and Alice Green want to start a business together.They will have equal ownership of the company.Alice would like to know whether a partnership or a corporation would be the best form of business (in her situation),strictly from a tax perspective.Alice would not take any form of payment from the company in the first year.
The following information is available for Alice.
Assume a constant tax rate of 41%.
A loss of $25,000 is anticipated for Year 1 of the business.
The corporate tax rate is 15%.
Required:
Based solely on minimizing Alice's Year 1's tax liability,which form of business will be most beneficial to Alice? Support your answer with calculations.

Question

John Brown and Alice Green want to start a business together.They will have equal ownership of the company.Alice would like to know whether a partnership or a corporation would be the best form of business (in her situation),strictly from a tax perspective.Alice would not take any form of payment from the company in the first year.
The following information is available for Alice.
  Assume a constant tax rate of 41%.
A loss of $25,000 is anticipated for Year 1 of the business.
The corporate tax rate is 15%.
Required:
Based solely on minimizing Alice's Year 1's tax liability,which form of business will be most beneficial to Alice? Support your answer with calculations.

Quizplus · Accepted Answer

The Answer of John Brown and Alice Green want to start a business together.They will have equal ownership of the company.Alice would like to know whether a partnership or a corporation would be the best form of business (in her situation),strictly from a tax perspective.Alice would not take any form of payment from the company in the first year.
The following information is available for Alice.
  Assume a constant tax rate of 41%.
A loss of $25,000 is anticipated for Year 1 of the business.
The corporate tax rate is 15%.
Required:
Based solely on minimizing Alice's Year 1's tax liability,which form of business will be most beneficial to Alice? Support your answer with calculations.

John Brown and Alice Green Want to Start a Business