Question

Ch.11

3) Contrast the federal income taxation of a corporation with that of a sole proprietorship and a partnership. Which of the three types of organization must file a federal income tax return?

Answer 1

Solution: Federal Taxation comparison table:

Particulars	Corporation	Sole Propiertorship	Partnership
Is business separate from owners?	Yes	No	No
Taxation	Corporation tax is paid by corporation. Second tax paid by owners if corporate income is distribution to owener in the form of dividends.	Income/loss reported by owener. Accordingly, tax is paid by owner.	Income/loss reported by owener. Accordingly, tax is paid by owners.

Three types of organisation must file a federal income tax return are the following:

(i) Tax-exempt organisation under section 501.

(ii) Tax-exempt organisation with annual gross receipts of less than $200,000 and assets less than $500,000

(iii) Tax-exempt organization that normally has gross receipts no more than $50,000 per year