There are several estate tax considerations relevant to different scenarios, which may impact clients' while trying to achieve their business goals. The essay, therefore, seeks to provide a thorough and appropriate analysis of the tax laws and regulations related to Andy, one of the owners of Tai-Ga.
Tai-Ga is a new start-up business, which seeks to maximize its tax outcomes once a suitable type of business entity is chosen. Principally, choosing to operate as a C corporation can offer several tax benefits than a partnership and an S corporation can offer its shareholders. For a C corporation, its income is taxed at a flat rate of 21% compared to a partnership whose income is taxed through the individual partners at a maximum rate of 37% of the total revenue ( Mertens, 2014). Also taking a C corporation as the form of business entity for the shareholders will imply that they will be able to fully deduct state and local taxes with the individual shareholder deduction being limited to a maximum of $10,000 ( McGrattan & Prescott, 2015) . For the C Corporation, the tax passes through the income generated by the business entity, which means that it will be eligible for a 20% deduction for the qualified business income. Also of benefit to the business entity, the 20% qualified business income is allowed for C corporations, which is not permitted for partnerships and S corporations forms of business entities ( McGrattan & Prescott, 2015) .
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Although operating as a C corporation will have several benefits to Tai-Ga, there are also other drawbacks that come along with it. As a C corporation, Tai-Ga will be subject to two levels of taxation, and they include taxation at its corporate-level earnings and one at the shareholder level. For instance, the shareholder's dividends are usually taxed at a 20% qualified dividend rate although there is often no preferential tax rate at both the local and state level ( McGrattan & Prescott, 2015) . For Tai-Ga this means that the consideration of federal taxes will double the tax rate to 39.8%. The individual shareholders' dividends will also be subjected to a 3.8% net investment income tax ( McGrattan & Prescott, 2015) .
Andy’s net investment income tax= 3.8% of $500,000
3.8/100 ×$500,000= $1,900
Andy will pay $1,900 net investment tax
Andy’s 20% qualified dividend= 20% of $500,000
20/100 ×$500,000= $100,000
Andy will pay $100,000 qualified dividend
Choosing a C corporation as an entity will, therefore, be suitable for Tai-Ga if it does not make distributions to its shareholders, for instance, the owners intend to take only salary perks and the profits for the business are reinvested, then it may result in income tax savings for Tai-Ga ( McGrattan & Prescott, 2015) . On the other hand, if Tai-Ga will distribute all its profits to its owners, then the double tax emanating from Tai-Ga as a C-Corporation will be disadvantageous.
For Andy and other shareholders of Tai-Ga, the profits and losses generated by the business entity can be carried forward and backward. For partnerships and S corporations, the fiscal year must coincide with their calendar year compared to a C corporation, which enjoys more flexibility in determining its fiscal year. Thus, shareholders can shift their income more easily by deciding what fiscal year to pay taxes on the bonuses they receive and when to take losses and this, in turn, reduces tax bills ( Fisher, 2015) .
In Conclusion, several benefits accrue a C corporation and choosing it as the form of business entity will be of interest to Tai-Ga's shareholders. They will have the option of writing off salaries and bonuses, which fall subject to payroll taxes and the entity will have the option of deducting its share of payroll taxes thus reducing shareholder’s tax burden.
References
Fisher, R. C. (2015). State and local public finance . Routledge.
McGrattan, E. R., & Prescott, E. C. (2015). Taxes, Regulations, and the Value of US and UK Corporations. The Review of Economic Studies .
Mertens, J. (2014). Law of Federal Income Taxation (Vol. 3). Callaghan.
