Question

Double taxation is a major drawback to which form of business organization?

a) Sole Proprietorship
b) Partnership
c) Corporation
d) Limited Liability Company (LLC)

Answer 1

Double taxation is particularly associated with corporations, where the company's profits are taxed and dividends paid to shareholders are taxed again individually.

Step-by-step explanation:

Double taxation is a major drawback to the corporation form of business organization. This means that the business profits are taxed at the corporate level, and then any dividends that are distributed to shareholders are taxed again on the individual's tax return. In contrast, a sole proprietorship and partnership experience pass-through taxation, where the business income passes through to the owners' personal tax returns, avoiding the issue of double taxation. An LLC, depending on its tax election, can also avoid this problem as it can opt to be taxed as a pass-through entity.