Comprehensive Problem 83 (Ch. 15)

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Complete the following problems located in Taxation of Individuals and Business Entities: • Comprehensive Problem 83 (Ch. 15) Respond to all questions. Support your answers with calculations, as needed. Identify significant tax and nontax issues or concerns that may differ across entity types. Dawn, Lind, and Mike forming their business relationship under the label Colored Custom Sheets, CCS will encounter several issues regarding both tax and nontax issues which may differ across entity types. For example, when considering tax issues across entity types, if Dawn, Lind, and Mike elect to select the limited liability company, they will need to understand that by default all profit and loses are passed though the business to its owners. The owners are also required to report income and losses on their personal tax returns when selecting the limited liability company structure. This also holds truth for sole proprietor or partnerships. The taxation is considered to be the simplest form and can be filed for a variety of different classifications of tax on form 8832. Should Dawn, Linda, and Mike elect a corporation structure, they will have to decide between a C corporation and S corporation. C corporations are separate taxable entities where both federal and state income tax are concerned and pay an entity-level tax on its income and gain. C Corporation is the only corporations that may take advantage of any loss and deduction it generates. If Dawn, Lind, and Mike were to select this type of entity they would each pay another tax on the corporation’s distribution of corporate earnings and profits when dispersed as dividends. However, contrary to C corporations, an S corporation is not a separate taxable entity for most federal and state income tax purposes. Dawn, Lind, and Mike will need to determine the best entity type that will

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