Northwest Brand, Inc., a small business, seeks my advice, and wants to avoid double taxation. With that in mind, how does double taxation occur? According to page 411 of the textbook, most companies are considered C Corporations. C Corporations, a corporation that is taxed separately from its owners, incur double taxation, which means shareholders are taxed on an individual level and on a corporate level as well. This means taxes incur twice on the same income. Corporations are unconnected legal entities from their shareholders, yet will be taxed on both aspects. (Miller & Hollowell, 2012, pg. 411)
Northwest Brand, Inc. wants to avoid double taxation, what methods could they take to organize their business so they can avoid having to pay both corporate and shareholder’s taxes? To avoid having to fulfill double taxation, they should elect for the Subchapter S treatment. By becoming an S Corporation, this would prevent them from incurring taxes on a corporate level and still, under limited liability, be
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cannot just apply, they will have to meet the certain requirements. In order to qualify for the status of S Corporation, Northwest Brands, Inc. would have to meet the following six requirements: first, they must be a domestic corporation. Another word, Northwest Brands, Inc. would need to be a liability entity. Second, Northwest Brands, Inc. must have either Common Stocks or Preferred stocks, not both. The next requirement is that Northwest Brands, Inc. must contain no more than 100 shareholders. Subsequently, all shareholders must be legal United States citizens. Another requirement is that shareholders may not hold membership of an affiliated group of corporations. Lastly, Northwest Brands, Inc. shareholders must be certain trusts, individuals, or trusts. It should be noted that corporations could be shareholders under specified conditions. (Miller & Hollowell, 2012, pg.