Partnership Entity Essay
Week 3 Discussion 1
Partnership Entity
* Determine the key factors to be considered when deciding on forming a partnership.
Factors to be considered when deciding on forming a partnership are: what type of business, type of company (DBA, LLC, LLP, Partnership, Sole prop), what kind of products, cost of starting, financing, Investors, taxes, your location, your market region, what’s your market clientele. Some other personal factors may include having common interests or concerns, understanding your partnership environment, understanding what a partnership involves, and being open to doing things differently.
* Create or retell of a situation in which the partnership entity form might be more advantageous (or disadvantageous) than operating as a Subchapter C or S corporation. …show more content…
Each type of corporation has its own advantages and disadvantages.
A partnership advantages are: ease of formation; pass-thru treatment for tax purposes; and flexibility of ownership and allocations. The primary disadvantage is the lack of liability protection; its transparent entity is not subject to income tax. The income of a partnership is taxed on the personal returns of the partners, regardless of whether the income is distributed or retained within the entity.
A Subchapter S Corporation has special tax exemption under the Internal Revenue Code. It is exempted from the Federal Corporate Income Tax and is exempt from taxation. They can elect to distribute money as profits rather than as salaries to the shareholders. Also when it comes to selling the corporation, the tax on the profits is lower for the S Corporations than for the C Corporations.
The C Corporation is a corporation that qualifies for the taxes under the Sub chapter C of the Internal Revenue Code of the Internal Revenue Service, and they face double taxation. Also C Corporations can have an unlimited number of shareholders, issue all types of stocks and do not require any time
frame.
* Discuss whether the IRS has acted on issuing guidelines related to a partner’s receipts of a profits interest or an interest in the future capital of the partnership (carried interest).
The Internal Revenue Service has just issued proposed regulations and a proposed revenue procedure dealing with equity interests granted as compensation for services rendered to a partnership. Interest in partnership profits with no interest in partnership capital is a bare profits interest; the receipt of a partnership interest in exchange for services is considered taxable. The time the profit is determined and added to the service partner’s capital account, it is taxable to the partner and deductible by the partnership. Profits interest in exchange for future services should be accepted if the partnership appears to be designed primarily to provide tax benefits to one or both parties, careful analysis should be applied to ensure that partner status for tax purposes is warranted.
* Take a position on the following statement: Since a partnership is not a taxable entity, it is not required to file any type of tax return. Support your position with examples or evidence. * Choose a classmate with the opposite position from the one you expressed. Persuade the classmate your position is stronger by refuting his or her points.
A partnership is not a taxable entity under federal law. The income from the partnership is taxed to the individual partners at their own rates, and they are required to file an information return on Form 1065. They also must report each partner's share of income and loss on Schedule K-1 of the 1065, which shows the result of the partnership’s operations for its tax year and the items that must be passed through to the partners. The distributive share of partnership income, gains, losses, deductions, or credits generally is based on the partnership agreement. You must report your distributive share of these items on your return whether or not they actually are distributed to you. Distributive share of the partnership losses is limited to the adjusted basis of your partnership interest at the end of the partnership year in which the losses took place.
Partnership Entity
* Determine the key factors to be considered when deciding on forming a partnership.
Factors to be considered when deciding on forming a partnership are: what type of business, type of company (DBA, LLC, LLP, Partnership, Sole prop), what kind of products, cost of starting, financing, Investors, taxes, your location, your market region, what’s your market clientele. Some other personal factors may include having common interests or concerns, understanding your partnership environment, understanding what a partnership involves, and being open to doing things differently.
* Create or retell of a situation in which the partnership entity form might be more advantageous (or disadvantageous) than operating as a Subchapter C or S corporation. …show more content…
Each type of corporation has its own advantages and disadvantages.
A partnership advantages are: ease of formation; pass-thru treatment for tax purposes; and flexibility of ownership and allocations. The primary disadvantage is the lack of liability protection; its transparent entity is not subject to income tax. The income of a partnership is taxed on the personal returns of the partners, regardless of whether the income is distributed or retained within the entity.
A Subchapter S Corporation has special tax exemption under the Internal Revenue Code. It is exempted from the Federal Corporate Income Tax and is exempt from taxation. They can elect to distribute money as profits rather than as salaries to the shareholders. Also when it comes to selling the corporation, the tax on the profits is lower for the S Corporations than for the C Corporations.
The C Corporation is a corporation that qualifies for the taxes under the Sub chapter C of the Internal Revenue Code of the Internal Revenue Service, and they face double taxation. Also C Corporations can have an unlimited number of shareholders, issue all types of stocks and do not require any time
frame.
* Discuss whether the IRS has acted on issuing guidelines related to a partner’s receipts of a profits interest or an interest in the future capital of the partnership (carried interest).
The Internal Revenue Service has just issued proposed regulations and a proposed revenue procedure dealing with equity interests granted as compensation for services rendered to a partnership. Interest in partnership profits with no interest in partnership capital is a bare profits interest; the receipt of a partnership interest in exchange for services is considered taxable. The time the profit is determined and added to the service partner’s capital account, it is taxable to the partner and deductible by the partnership. Profits interest in exchange for future services should be accepted if the partnership appears to be designed primarily to provide tax benefits to one or both parties, careful analysis should be applied to ensure that partner status for tax purposes is warranted.
* Take a position on the following statement: Since a partnership is not a taxable entity, it is not required to file any type of tax return. Support your position with examples or evidence. * Choose a classmate with the opposite position from the one you expressed. Persuade the classmate your position is stronger by refuting his or her points.
A partnership is not a taxable entity under federal law. The income from the partnership is taxed to the individual partners at their own rates, and they are required to file an information return on Form 1065. They also must report each partner's share of income and loss on Schedule K-1 of the 1065, which shows the result of the partnership’s operations for its tax year and the items that must be passed through to the partners. The distributive share of partnership income, gains, losses, deductions, or credits generally is based on the partnership agreement. You must report your distributive share of these items on your return whether or not they actually are distributed to you. Distributive share of the partnership losses is limited to the adjusted basis of your partnership interest at the end of the partnership year in which the losses took place.