Taxation of the Corporations and the Partnerships - 2200 Words

Taxation of the Corporations and the Partnerships (Essay Sample) Content: Business Formation and TaxationNameInstitutionInstructorDateIntroductionBusiness can be of various types that include partnerships, limited and unlimited organizations, as well as corporate businesses. The choice of the industrial entity and type to adopt is geared by various factors. The factors considered in determining the type of the industry to elect the business include taxation laws, the legal, ethical, and professional requirements of the industrial sector, and the type of the merchandise or sector of the industry of the firm, as well as the goals and mission of the business (Hedman Kalling, 2003). The paper will explore the different taxation laws applicable for the Corporations and the limited enterprises. The paper will evaluate the taxation approaches in the lens of the guiding factors towards choosing a partnership over a corporation. In addition, the paper will explore the possible tax reasons for opting for a limited Company over a corporation. Finally , the writer will evaluate the factors considered in deciding the type of the business to set and the types of research the entrepreneur must conduct.Taxation of the Corporations and the PartnershipsTaxations of the corporations and the partnerships have significant differences that are usually considered by the business people in determination of the type of the firm to set. The differences in the taxation process for the two organizations are manifested in the point of taxation, and in the taxation of the directors of the organization. For the partnerships, the taxation is done after the revenues are received and before the business expenditures such as salaries and the directors` withdrawals. After the taxation of the business, the remaining amount is used to pay salaries to the workers and the shareholders. The salaries paid to the workers and the shareholders is taxed as pay as you earn. On the other hand, a corporation earns, spends, and pays taxes. The corporation pays taxes on what remains after everyone has been paid. The directors` withdrawals are treated as business expenses thus are not taxed (Irs.gov, 2016).Tax Treatment effect on the Shareholders and the PartnersThe effect of the taxation design to the corporations befits the shareholders in spending before the tax monies. The shareholders reap significant benefits through directors` withdrawals that are treated as business expenses and therefore exempted from taxation. On the other hand, the business is able to meet their expenses and pay their workers before taxation. The amount taxed after deductions of the business expenses is little as compared to the taxation before expenditure. On the other hand, taxing partnerships before spending increases the amount paid in taxes decreasing the revenues attained by the business. The partners` earnings are still taxed (Osterwalder Pigneur, 2010).Two Reasons why a Business Person would prefer a Partnership Over a corporationThe reasons for the opting for a partnership rather than a corporation could be for the legal implications of the organization and for the taxation design. The partnerships have the ownership of the business tied directly to the operating persons. The owners have direct responsibility and liability for the partnerships unlike in the corporations where the directors are legally separated from the organization. The second reason for opting for a partnership could be the ability of the owners to raise the business capital through tying of the loans to their personal assets as collateral. The case is not applicable for the corporations (Irs.gov, 2016, p. 4).Reasons for forming a LLC Over CorporationLimited Liability Company could be by shares or by guarantee where the members have limited liabilities towards the operations of the business. One can opt for the formulation of the LLC because it provides the opportunity for setting the terms and extent of personal liability of the directors to the business. The liabili ty can be limited by the shares or by guarantee. The taxation process could motivate persons to form a limited liability business over a corporation. The taxation of the business is taxed at the point of earning and after it has paid its salaries (Hedman Kalling, 2003, p. 18).Tax benefits for a Corporation over other business StructuresFrom the analysis of the taxation of the different business groups, corporations seemed to the best options for the people that focused on benefiting from the taxation processes. The taxation of the corporation happened after the business had met all its expenditures including paying salaries and wages to their workers and directors. The directors` expenditures/ salaries are exempted from the taxes by treating them as Company expenses. The design ensures that the business pays less in the taxes as compared to the other types of organizations that are taxed before they spend on their workers` salaries and wages. The business owners gain more from the organization through the decreased taxes paid by the business. The taxations of the organization after the deduction of the total business expenses ensure that the amount taxed is less and this translates to decreased amounts paid in taxes (Osterwalder Pigneur, 2010, p. 39).Factors to Consider when deciding the type of Business to setWhen considering the type of the organization to set, one must consider...