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 be least favorable?
A) C corporation.
B) LLC.
C) General partnership.
D) S corporation.

Question

Quizplus · Accepted Answer

A C corporation is generally the least favorable entity choice in this scenario as it is subject to double taxation. The corporation will pay income tax on any profits earned, and then shareholders will have to pay income tax again when they receive the profits as dividends or distributions. If the business is experiencing losses, these losses cannot be passed through to the shareholders to offset other income. This can result in a higher tax burden for the business overall. Additionally, C corporations have more complicated tax reporting requirements and may be subject to higher taxes and fees in some states. An LLC or S corporation may be a more favorable choice as they allow for pass-through taxation and may have simpler reporting requirements. A general partnership may also be viable, but it involves personal liability for all partners. Ultimately, the best entity choice will depend on factors such as the business objectives, liability exposure, and tax implications.

Assume You Plan to Start a New Enterprise; You Know