Karen, Single with the Standard Deduction Being the Only Deduction

question 37

Essay

Karen, single with the standard deduction being the only deduction for her individual tax return, wants to set up a business. She will use either a sole proprietorship or incorporate as a regular corporation. She expects the business to earn $160,000 after all expenses and payments to Karen except for federal taxes. Karen will take $40,000 from the business for living expenses (as a distribution from a sole proprietorship or a salary from a corporation). Considering only income taxes for 2018, should she establish the business as a C corporation or as a sole proprietorship?

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Definitions:

Rule-making

The process by which governmental agencies establish new regulations or amend existing ones.

Enforcement Activities

Actions taken by authorities to compel obedience to laws, regulations, or guidelines, often involving monitoring, inspection, and potential penalties.

Interpretative Rule

A rule issued by an administrative agency that clarifies how the agency interprets or intends to apply its statutory authority.

Rights

Fundamental privileges or claims individuals are entitled to under law, including rights to freedom, expression, privacy, and equality.