Question

are the tax consequences of the formation of a partnership similar to those of S corporations? How? If there are differences, how and why are they different?

Answer 1

An S corporation is similar to a partnership in that both offer pass-through taxationn of company profits.The pass-through taxation avoids the double taxation that occurs with a C corporation when the company pays a corporate tax on profits and the same profit is taxed again when distributed to shareholders.While a partnership is organized under state law, an S corporation is a creature of the federal tax system. The S corporation is a regular corporation for state law purposes.A partnership can have different classes of partners and has more flexibility for allocating income and losses to different types of partners.