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Taxation LAW




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Running Head: TAX MEMO 1
Tax Memo
Institutional Affiliation

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To: Penelope, Mark and John
From: Me
Date: 14
August 2014
Subject: Entity Selection Issue
Part 1: Various Forms of Organizations
The purpose of this memo is to provide discussion about several business entities while
addressing tax and non tax considerations of the selected entity. There are several types of
business organizations that can be chosen. These include; sole proprietorship, partnerships,
limited partnerships and corporations. In sole proprietorships, the owners of the business are
legally and financially responsible for the business decisions. In partnerships, business owners
tend to be individually and jointly liable for actions of their business. When it comes to taxations,
both the enterprise and individuals are taxed. In limited partnerships business owners have
minimal liability to their investment. In this form of partnership, only the business is taxed while
owners are not legally and financially liable for their actions.
Part 2: Recommended Organization
My recommendation is that Limited Liability Company is the best form of business
organization that can be chosen by the three partners. A limited liability helps to protect the
assets of the owners from taxation, debts and legal obligations of their entity. The owners of the
business do not pay tax at their level of business but tax is paid at the individual level. Apart
from flexibility in management structure, a limited liability has fewer restrictions on how it can
be formed by the owners hence improving its functioning. Unlike all forms of business entities,

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it is evident that a limited partnership is the best because it is a separate business entity from the
owners. The organizational rules in a limited partnership is also flexible, a factor that helps to
improve their functioning. In general, partnerships tend to split their taxes or losses based on the
proportion of ownership by the members (Lang, 2010).
Part 3: Tax Consequences
In a limited liability company, the individuals have limited functions in terms of
contributing their services to the organization. Once they have raised their investments, it is easy
for them to increase their contributions but not participate in the daily management of the
organization. The business owners are also not taxed at the business level but at the individual
level of their contributions. In addition, the government agencies do not allow LLC to pass their
tax on profits and losses to the individual tax return. This is beneficial as it helps the business
with the opportunity to grow hence improving their performance (Wittendorff, 2010).
Part 4: Taxation of the Limited Liability
A limited liability company is usually taxed differently from the other forms of business
entities. Since the members are there the IRS will treat the business like a partnership. The
federal tax law usually treats any organization that has more than two members as a corporation.
This means that the LLC itself will not be involved in the payment of the taxes. This also means
that each member is liable for the payment of the taxes through their shared losses or taxes. The
income tax is cut from schedule S according to the IRS policies. The documents that are required
by the IRS include the social security number and the employers identification numbers EIN.
These documents are required as they are effective in determining the taxation for each member
in the taxation law. The IRS will issue a filling form that will help to determine the limited

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Really helpful material, saved me a great deal of time.