Aubrey Richards and Tashi Pasang Would Like to Start a Business

question 8

Essay

Aubrey Richards and Tashi Pasang would like to start a business in 2021 with equal contributions of $75,000.They will split any profits and losses equally.Aubrey and Tashi would like to know whether a partnership or a corporation would be the best form of business strictly from a tax perspective in light of other income to be received in 2021.Neither would not take any form of payment from the company in the first year.
The following information (which is the same for both Aubrey and Tashi) is available for 2021 projections:
Employment income = $100,000
Interest income = $5,000
A business loss of $25,000 is anticipated in Year 1 for the new company.
Aubrey and Tashi both have a personal marginal tax rate of 45%.The small business corporate tax rate is 12%.
Required:
Which form of business will be most beneficial to Aubrey and Tashi from a tax liability perspective in Year 1?

---

Definitions:

Polygenetic Effects

The outcome on traits or diseases that result from the combined influence of multiple genes.

Epigenetics

Epigenetics involves the study of heritable changes in gene expression that do not involve changes to the underlying DNA sequence, often influenced by environmental factors.

Polygenetics

A branch of genetics that studies the quantitative effect of multiple genes on the phenotype of organisms.

Growth Mindset

The belief that abilities and intelligence can be developed through dedication and hard work.