TAX ATTRIBUTES OF FORMS OF BUSINESSA. Tax Issues for ProprietorshipFor the proprietorship the IRS treats the business as the individual owner. All income is personalincome and the business is not taxed as a separate entity. The proprietorship has some taxadvantages compared to the corporation.a.b.There is no double tax on profits.There is no capital stock tax or penalty for retained earnings.B. Tax Issues for Partnership.The partnership’s tax advantages and disadvantages are similar to the proprietorship. Limitedpartnerships can provideC. Tax Issues for CorporationThe corporation has the advantage of being able to take many deductions not otherwiseavailable. The disadvantage is that dividends are taxed twice. S CORPORATIONSThe S Corporation combines the tax advantages of the partnership and the corporation.1. It is designed so that the venture income is declared as personal income on a pro rata basis.2. Shareholders benefit from all of the income and the deductions of the business.ADVANTAGES OF AN S CORPORATION1. Capital gains or losses are treated as personal income.2. Shareholders retain limited liability protection.3. It is not subject to a minimum tax, as C corporations are.4. Stock may be transferred to low-income-bracket family members.5. Stock may be voting or nonvoting.6. This form may use the cash method of accounting.7. Corporate long-term capital gains and losses are deductible by the shareholders.DISADVANTAGES OF AN S CORPORATION1. Even with the new regulations, there are still some restrictions.2. If the corporation earns less than $100,000, then the C Corporation would have a lower taxliability.3. The S Corporation may not deduct most fringe benefits for shareholders.4. The S Corporation must adopt a calendar year for tax purposes.5. Only one class of stock, common stock is permitted.6. The net loss of the S Corporation is limited.THE LIMITED LIABILITY COMPANY1. A popular new entity is the limited liability company (LLC), which offers similaradvantages as the S Corporation but with more liberal tax rules under subchapter K. Thisform is a partnership-corporation hybrid with the following characteristics:2. Where the corporation has shareholders, the