Question

Lauren, Kathryn and Emily close their medical business, pool their assets and open a surf shop. The state where they reside assesses corporations at an 8% tax rate and 12% on individuals, regardless of income. The sole requirement the girls are considering is finding the most tax advantageous business entity. For the foreseeable future the girls are not going to take dividends from the profits but reinvest profits back into the business. The wisest business entity would be
a. professional corporation.
b. limited liability corporation.
c.C corporation.
d. S corporation.

Answer 1

Answer:

D) S corporation.

Explanation:

S corporations do not pay any income taxes. Instead, shareholders pay individual taxes over their dividends.

In this case, the three shareholders are not thinking about getting any dividends for the first few years, they want to reinvest all profits, therefore, their company would not pay any taxes, and neither would they individually.