Comprehensive Problem 83: Comprehensive Questions And Answers
Chapter 19 Comprehensive Problem 83
Identify significant tax and non tax issues of concerns that may differ across entity types.
Limited Partnership:
Tax issues and concerns: Partners will pay taxes on profits they receive from their investments. Tax liability is determined by tax basis base on original investments. In this case Dawn is 30%, Linda is 30% and Mike is 40%. Partners need to pay taxes on income whether they receive this income or reinvested back into the business. General or active partners must also pay self employment taxes.
Non tax issues and concerns: General or active partners are responsible for the companies liabilities. Even those liabilities incurred form a limited partner. In this case there is an $800,000 mortgage
a 300,000 loan from the bank and the $200,000 loan from Mike. Both Dawn and Linda are responsible for these liabilities. Mike in the other hand would only loose his original investment of $200,000. There is a limited capability to increase capital under a partnership. An ineffective partnership agreement can create problems for a partnership.
S corporations:
Tax issues and concerns: There are specific requirements a corporation must meet in order to be classify as an S corporation. It can only have up to 100 investors, it can only have one type of share and investors can not be a nonresident alien, corporations, partnerships or certain types of trusts. The tax basis for an s corporation is the same as for a partnership. However property investments are treated different when dealing with gains and losses and when service is provide for ownership interest. First of all the company's basis in donated property is the smaller amount of either the Fair Market Value or the shareholder's Adjusted Basis. In Dawns case the basis for ownership $70,000, the adjusted . Under the S corporation an investor that invest time must
C Corporations:
Non tax issues and concerns: “State corporation laws specify the rights and responsibilities of corporations and their shareholders. Consequently, shareholders have no flexibility to alter their legal treatment with respect to one another, with respect to the corporation, and with respect to outsiders. There several steps require for incorporation, corporations are heavily regulated and public corporation must follow GAAP to file financial statements and it is not easily disole
Identify significant tax and non tax issues of concerns that may differ across entity types.
Limited Partnership:
Tax issues and concerns: Partners will pay taxes on profits they receive from their investments. Tax liability is determined by tax basis base on original investments. In this case Dawn is 30%, Linda is 30% and Mike is 40%. Partners need to pay taxes on income whether they receive this income or reinvested back into the business. General or active partners must also pay self employment taxes.
Non tax issues and concerns: General or active partners are responsible for the companies liabilities. Even those liabilities incurred form a limited partner. In this case there is an $800,000 mortgage
a 300,000 loan from the bank and the $200,000 loan from Mike. Both Dawn and Linda are responsible for these liabilities. Mike in the other hand would only loose his original investment of $200,000. There is a limited capability to increase capital under a partnership. An ineffective partnership agreement can create problems for a partnership.
S corporations:
Tax issues and concerns: There are specific requirements a corporation must meet in order to be classify as an S corporation. It can only have up to 100 investors, it can only have one type of share and investors can not be a nonresident alien, corporations, partnerships or certain types of trusts. The tax basis for an s corporation is the same as for a partnership. However property investments are treated different when dealing with gains and losses and when service is provide for ownership interest. First of all the company's basis in donated property is the smaller amount of either the Fair Market Value or the shareholder's Adjusted Basis. In Dawns case the basis for ownership $70,000, the adjusted . Under the S corporation an investor that invest time must
C Corporations:
Non tax issues and concerns: “State corporation laws specify the rights and responsibilities of corporations and their shareholders. Consequently, shareholders have no flexibility to alter their legal treatment with respect to one another, with respect to the corporation, and with respect to outsiders. There several steps require for incorporation, corporations are heavily regulated and public corporation must follow GAAP to file financial statements and it is not easily disole