An Individual in the Top Tax Bracket Is Planning to Establish

question 41

Multiple Choice

An individual in the top tax bracket is planning to establish a new corporation and is weighing the choice between the C corporation form and the S corporation form.She expects the corporation to be profitable each year,with all profits reinvested except to the extent needed to pay corporate taxes or shareholder taxes on profits.The shareholder's plan is to sell the business after six years for a substantial gain.The C corporation will qualify as a small business corporation under Sec.1202.Applying the C Corporation Model and the Flow-Through Model

• A)the C corporation form will provide a greater return for the period of ownership if the stock is sold after the six years.
• B)the S corporation will provide the greater return for the period of ownership if the stock is sold after the six years.
• C)the S corporation will provide the greater return for the period of ownership if the stock is instead sold before five years.
• D)Both A and C are correct.

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Definitions:

Restore Equity

The process of adjusting factors in a relationship or situation to ensure fairness and balance is achieved or restored.

Affiliative Behaviour

Actions aimed at creating or maintaining social bonds, often seen as a response to stress or anxiety.

Privacy

The right or condition of being free from unauthorized intrusion or disclosure of personal information.

Comparison Level

A standard that develops over time, allowing us to judge whether a new relationship is profitable or not.