Question

What form of business is income allocated on a pro rata basis and taxed on an individual basis?

1) Sole proprietorship
2) Partnership
3) Corporation
4) Limited liability company

Answer 1

Income is allocated on a pro rata basis and taxed individually in a partnership, where each partner reports their share of income on their tax returns.

Step-by-step explanation:

The form of business in which income is allocated on a pro rata basis and taxed on an individual basis is a partnership. Partnerships are composed of two or more individuals who share both the profits and losses of the business according to their ownership stake or agreement.

Unlike corporations, where the entity itself is taxed separately from its shareholders, in a partnership, each partner reports their share of the business income or loss on their individual tax returns. This is known as 'pass-through' taxation, which can lead to personal tax advantages for the partners involved.