Partnerships (1of3) Two or more owners Conduit entity Reports, but does not pay income tax No limited liability Except for limited partners 6
6 Partnerships (1 of 3) Two or more owners Conduit entity –Reports, but does not pay income tax No limited liability –Except for limited partners
Partnerships (2of3) Tax advantages continued Losses other income(with limitations) Income retains its character Income/gain increases basis
7 Partnerships (2 of 3) Tax advantages continued – Losses other income (with limitations) – Income retains its character – Income/gain increases basis
Partnerships (3of3) Tax disadvantages Profits taxed as earned Partners not employees >>Profits subject to SE tax >No tax-free fringe benefits Fiscal year deferral difficult to obtain 8
8 Partnerships (3 of 3) Tax disadvantages –Profits taxed as earned –Partners not employees »Profits subject to SE tax »No tax-free fringe benefits –Fiscal year deferral difficult to obtain
Corporations (1of2) Separate taxpaying entity Limited liability Tax advantages - Tax rates start at 15% Shareholders may be employees 》 No SE tax ))Eligible for tax-free benefits May exclude 50% of gain on stock sale if certain requirements met 9
9 Corporations (1 of 2) Separate taxpaying entity Limited liability Tax advantages –Tax rates start at 15% –Shareholders may be employees »No SE tax »Eligible for tax-free benefits – May exclude 50% of gain on stock sale if certain requirements met