Refer to the facts in the preceding problem. a. If the business is operated as a partnership,
Question:
Refer to the facts in the preceding problem.
a. If the business is operated as a partnership, explain the payroll tax/self-employment tax implications for the entity, Thomas, and Angela. (No calculations are required.)
b. If the business is operated as an S corporation, explain the payroll tax/self-employment tax implications for the entity, Thomas, and Angela. (No calculations are required.)
c. Given your discussion, how might payroll tax/self-employment taxes influence Thomas and Angela’s choice of entity through which to operate their business?
Data from Prob. 9
Angela and Thomas are planning to start a new business. Thomas will invest cash in the business but not be involved in day-to-day operations. Angela plans to work full-time overseeing business operations.
The two currently project that the business will generate $200,000 of annual taxable income before consideration of any payments to Angela for her services. Both agree that Angela's services are worth $100,000.
Angela and Thomas plan to form a pass through entity but are unsure whether to choose a partnership or an S corporation. In either case, they will be equal owners of the entity. Given their other sources of income, both Thomas and Angela have a 37 percent marginal tax rate on ordinary income. (Ignore any payroll or self employment tax consequences.)
PartnershipA legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...
Step by Step Answer:
Principles Of Taxation For Business And Investment Planning 2019 Edition
ISBN: 9781260161472
22nd Edition
Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan