Question

Which of the following business organizational forms create(s) a tax liability on income at the personal income tax rate?

1-Sole proprietorship
2-Partnership
3-Corporation
4-Both Sole proprietorship and Partnership

Answer 1

Sole proprietorships and partnerships create a tax liability at the personal income tax rate for their owners, while corporations are taxed at the corporate tax rate.

Step-by-step explanation:

The business organizational forms that create a tax liability on income at the personal income tax rates are the sole proprietorship and the partnership. These types of business entities are taxed through the individual tax returns of their owners, rather than at the corporate level. A sole proprietorship is a business owned and operated by one individual, and it is known for being easy to start and manage. Profits from a sole proprietorship are reported on the owner's personal income tax return. In a partnership, two or more individuals share ownership, and they report income or loss from the business on their personal income tax returns. A corporation, on the other hand, is taxed as a separate legal entity at the corporate tax rate, and shareholders are then taxed individually on dividends received.