Business Structure And Income Taxation
A business is defined according to the Internal Revenue Code as an unincorporated legal body or association engaged in commercial, industrial or financial activities for profit. Such businesses may be either for-profit or non-profit corporations that perform either a direct or indirect social purpose or further a charitable purpose. All businesses, regardless of their type, must obtain a permit from the appropriate Tax Department in order to carry on most commercial activities. Business owners are generally classified into two categories: sole proprietors and partnerships. Partnerships, which share equal shares of the company’s stock or assets, are considered a partnership for the tax year in which they arise.
For a sole proprietor, the tax id of the business and the owner’s individual or family income are included in the individual’s return under the column for “married filing separately” in the income tax form. A S-corp company is distinguished by the use of the word ‘sole’ or ‘individuated’. Under these circumstances, the individual owns and controls the entire business entity while each partnership member is liable for a portion of the business expenses, which are tax-deductible to the partner’s individual income and may be distributed among the partners in the discretion of the Board of Directors. A C-corp corporation is characterized by the use of the word ‘common’ or ‘limited’ instead of ‘sole proprietorship’.
Under the tax law, partnerships may still be classified as a business. If a partnership for purposes of capability exists, all the members are treated as owners of the business. The partnership’s income, gain, loss, and profits are included in the owner’s return. However, the profits of the partnerships may be distributed by the Board of Directors according to the discretion of the Board.