Final answer:
The tax costs of incorporating a business may be low, while the tax costs of liquidating a business may be high due to the different tax treatments for these processes.
Step-by-step explanation:
Tax advisors caution people who are starting a new business that the tax costs of incorporating a business may be low while the tax costs of liquidating a business may be high because of the different tax treatments for these two processes.
When starting a new business, incorporating it can provide certain tax advantages such as the ability to deduct business expenses and access to certain tax credits or incentives. On the other hand, when liquidating a business, there may be tax consequences such as taxes on capital gains that could be applicable.
For example, if a business incorporates and sells its assets later, it may be subject to capital gains taxes on the profits from the sale. On the other hand, a sole proprietorship that is liquidated may not face the same tax consequences, as the business and personal assets are not separated.