Assignment 1: Partnership vs. Corporation
Due Week 7 and worth 240 points
Use the partnership and corporate tax returns for the practice sets titled, “Pet Kingdom” and “ROCK the Ages, LLC” that you prepared in Weeks 3 and 5 in order to complete this assignment.
Write a four to five (4-5) page paper in which you: 1. Compare and contrast the tax rules and treatment applicable to corporations and partnerships. Indicate the major way in which the tax treatment affects the shareholders or partners. The tax rules for a corporation are taxed at a different level than the various business structures. Corporations are the only business structure that are required to pay its own income taxes based on the profits received. The corporation requires it to file a tax return using Form 1120 and pay taxes at a corporate income tax rate on any profits. When deciding on what amount must be paid at a corporate level, the amount of tax due must be estimated and are due by the end of the year and quarterly payments are recommended. The shareholders are affected by the corporation tax rules, because they are taxed based upon being owners and working for the corporation and required to pay taxes on their salaries and the bonuses they receive like any regular employees of a company. It must be understood that salaries and bonuses are being deducted as business expenses, so that means that the corporation does not pay taxes on them. A corporation is taxed on all its profits because it does not deduct any profits as a business expense, but it is composed of money that is kept in company to cover expenses or expansion projects called retained earnings that are distributed to the shareholders as dividends. The IRS will allow a corporation to leave up to $250,000 at one time when other business entities can only retain up to $150,000 at a time. Other benefits of forming a corporation is