Assignment on personal income tax PDF

Table of Contents
Question 01................................................................................................................................................2
Question 02................................................................................................................................................5
Question 03................................................................................................................................................8
References................................................................................................................................................14

Question 01
1.
Sole Proprietorship: It is indeed a one-person operation of the casual kind. It is not necessary to
register with the authorities for this service. The owner just has to collect personal income tax
and does not have to contribute corporate income tax. A sole proprietorship is treated the same
under the law as an entity. To start a company as a single proprietor, all you need is a few legal
documents, such as a company registration and a tax identification number (Upcounsel, n.d.).
Corporation: The state treats corporations as a distinct corporate body, though as a result, they
are entitled to many of the same rights and privileges that a person would have under the law. If
they like, they may register a business name, engage into contracts, and be subject to taxes.
Shareholders control corporations, and a board of directors is in charge of making significant
choices and formulating rules. Whenever a company's ownership shifts, the company does not
dissolve.
Creating a limited liability corporation protects your personal assets whilst allowing you to
operate in a more casual manner. Contrary to sole proprietorships, corporation structures tend to

give legitimacy and long-term viability. People realize that corporations must adhere to a set of
standards in order to conduct business, while sole proprietorships are not subject to governmental
control or oversight. In addition, it offers tax freedom, requires fewer paperwork, and limits your
legal responsibility. The drawback of an LLC is that, unless you want to be treated as a
corporation, you would owe self-employment taxes on your profits. Because of this, the earnings
made by the LLC will not be taxed at the corporate level, but instead would be distributed to the
LLC's members, who will report them on their individual taxable profits. Uncertainty over duties
and a finite lifespan are two more drawbacks (Hira, 2017).
Liability is minimized when operating as a corporation rather than a single proprietorship. As a
single owner, you are individually liable for any obligations or liabilities your firm accrues. As a
result, if the company is eventually sued for a significant amount of money, his personal assets
might be at risk. Corporations and Limited Liability Companies (LLCs) enable an individual to
use a corporate liability shield to safeguard their financial property against company liabilities.
Usually, assets held by the company are exposed to business liabilities in these organizations;
assets not controlled by the company normally cannot be claimed to satisfy business obligations.
Sole proprietorships, on the other hand, are firms in which there is only one owner. Associating
under an LLC or corporation makes it easier to draw in financiers and collaborators into your
company. The drawback pertains to their tax situation (Villaluz, 2019).
2.

Would recommend to go with LLC.
A limited liability company (LLC) is regarded as a distinct statutory body than its employees or
owners. Unlike toward a corporation's stockholders, LLC owners are not personally accountable
for the debts or legal obligations of their company. Unlike investors, LLC owners risk losing
their initial financial investment in the company. Although LLCs have legal duties, personal
assets such as a house or a bank account of the LLC owner are not at danger as they would be for
a sole proprietorship or general partnership. If you personally guarantee a company debt or fail to
take reasonable care and cause injury to a third party or violate your duty to your LLC, you may
still be held personally accountable, just as in other corporate organizations.
Standard businesses are subject to two levels of income taxes. Profits accrued by the business are
subject to income tax, and shareholders are responsible for any dividend taxes. LLCs are given a
special tax status known as "pass through," which means that earnings allotted to LLC members
are taxed only once, on their personal income tax returns. LLCs that meet the IRS's definition of
a partnership or S corporation may benefit from the same "pass through" tax status. Additionally,
LLC owners who are pass-through company entities may be eligible to deduct 20% of their
business revenue under the new Tax Cuts and Jobs Act 20% pass-through deduction. If you're a
business owner looking for further information, take a look at the 20% Pass-Through Tax
Deduction (Fitzpatrick, 2012).