At any point in time when selecting a legal structure that is appropriate for one's business, some significant tax consequences are involved. Even though a partnership and a corporation are both useful when it comes to running a business, when deciding to choose which structure best fits the business, one should always factor in the offer with the best tax rules and treatment basing on the needs of the business owners. This decision should be carefully made since tax rules, and procedures do not concern the business at its infant stage but are concerned with long-term consequences for business profitability.
Comparison between Partnership And Corporation Tax Rules and Treatment, and How They Affect Partners and shareholders.
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A business that is based on a corporation is predominantly an entity that is independent and is a separate form from its shareholders. A corporation is legally considered a taxpayer on its own by the Internal Revenue Service (Masters, 2015) . Therefore, a corporation must at all times file annual income tax returns under its name and the identification number of its employer. Thus, corporations are obligated to pay taxes on their net incomes at the tax rate required of corporate', and can only be exempted if it meets the requirements of being an S corporation. A corporation which has qualified to be an S corporation is legally allowed to pass through its earnings to its shareholders and thus is liable to avoid double taxation. A partnership, on the other hand, is not an independent legal entity separate from its owners. Moreover, according to IRS rules, it is neither a taxpayer (Masters, 2015) . In other words, a partnership is predominantly business endeavors mainly operating under legal names. Additionally, partners are personally responsible for any actions or activities of the business and are further obligated to annually report the revenue and expenses of the business to the IRS on an informational tax return (Masters, 2015) . However, partners are not liable to pay taxes as a business entity.
While partnerships are required to pass their profits and losses onto to its partners proportionally instead of paying entity-level taxes, a corporation is required to distribute their earnings to their shareholders in the form of dividends (Masters, 2015) . Each partner in a partnership is obligated to share his or her profits and losses on their individual income tax returns. Furthermore, they are required to pay taxes on the amounts of their tax rates. As opposed to partnerships, dividends distributed to shareholders, on the other hand, are disbursed from the after-tax profits of the corporation on a per-share basis (Masters, 2015) . After receiving their dividend payments, shareholders are thus required to report payments on their income returns and additionally pay taxes on the distribution of their tax rates.
Consequently, while the IRS often consider partners as self-employed individuals and not employees of a partnership, any compensations that they take for any services that they render the partnership is fundamentally treated as an advance against partnership profits (Masters, 2015) . Therefore, partners are required to pay self-employment taxes on any money that they receive. However, shareholders in a corporation are mainly considered as employees by the IRS. They earn wages from which the corporation deducts their share of payroll withholdings while paying the percentage of the employer (Masters, 2015) . Moreover, corporations have the mandate to write off the salaries and payroll taxes of employees as expenses of the business. Additionally, corporations can cam deduct any fringe benefit that is offered to shareholders as business expenses, while on the other hand, the IRS often prevent a partnership from deducting many of these same expenses.
Advantages of Partnership over Corporation
Since partnerships are not wholly separated from their owners, they have the freedom of freely moving their assets in and out of the business whenever and wherever. They are consequently allowed to inject additional cash into their business from their funds or take more earnings out of business at any time they want (Swanson & Sansone, 2010) . This freedom is allowed to them because at the end, taxes to the business fall on its owners, therefore there is nothing that can stop them from moving cash, property and other goods from the partnership's service. Shareholders in a corporation, however, are not allowed to fluidly move their assets in and out of the corporation in that every cash and property must be fully accounted for (Swanson & Sansone, 2010) . Additionally, any transfers involving physical properties, be it land or chattel is mandated for sound recordings.
More importantly, a business owner might opt to become a partnership due to the issue of tax rules and treatments. Profits and losses of partnerships are fundamentally passed over to the partners who incorporate them in their tax income tax, a factor that simplifies the tax burdens that partners have to bear (Swanson & Sansone, 2010) . These tax rules that partnerships are required to adhere to are more beneficial than those required of corporations in that since corporations are entities in their rights, they are taxed, and their profits are consequently passed to the shareholders who are accordingly taxed. Thus, the double taxation that occurs in corporations is entirely avoided by partnerships (Swanson & Sansone, 2010) . Moreover, as opposed to partnerships, the losses of corporations are not passed on to shareholders. This often results in a situation where the liability of shareholders to receive additional tax reliefs if their corporation performs poorly is taken away.
Tax Rules that Make C-Corporation a Better Option than A Partnership.
As a consultant, I would widely recommend a C-corporation as a structure for a business due to tax benefits that it offers. As opposed to partnerships, C-corporations often allow non-Personal Service Corporations to accumulate their capital at low tax rates mainly for funding their account receivables, fixed assets, and inventories (Starkman, 2007) . Partnerships often have their money taxed at the partner's marginal rate and are fundamentally coupled with FICA liability. More importantly, when C-corporations taxable incomes are managed not to exceed $75 ,000, they often attain significant front-end savings on taxes that consequently reduces the cost acquiring capital for use in the corporation (Starkman, 2007) . Moreover, in C-corporations, income or losses that are passed through to shareholders to raise their audit potentials does not exist. More importantly, shareholders in C-corporations predominantly do not have the liability of acquiring additional taxes as a result of an audit. If in any case tax a corporation’s tax assessment exceeds its value, shareholders can walk away from the tax debt and abandon the bankrupt corporation, a factor that is not possible with partnerships since tax liabilities often fall directly to the partners.
Considerations and Research that are Taken by Business Owners.
In choosing the best entity that is best suitable for achieving the goals and visions of a business, any business owner must take into consideration the tax rules and treatments and the liability of exposure that is allowed for each business entity. Moreover, in choosing a new entity, business owners must consider whether the entity chosen will allow for efficient operations and adequate financing. Furthermore, business owners have to consider if the body selected will ensure continued business operations after its formations and not an automatic termination of the business. A business owner must first research the degree of risk which the entity he or she chooses offers his or her assets from the liabilities that arise from the business. Furthermore, any business owner must research the best ways of pursuing tax advantages to avoid multiple layers of taxation. Consequently, they must investigate the ability of the entity to offer ownership interest to the business key employees and the cost that will be involved in operating and maintaining the business. All these factors combined will enable the business owner to choose which entity best fits his or her business goals and visions to allow the smooth running of the business.
References
Masters, T. (2015). Differences in a Partnership & Corporation for Tax Treatment. Retrieved July 2018, from AZCentral: https://yourbusiness.azcentral.com/differences-partnership-corporation-tax-treatment-5838.html
Starkman, J. (2007). Advantages of a C Corporation. The Tax Adviser , 1-6.
Swanson, A., & Sansone, J. (2010). Choice of Entity: Benefits of a Partnership. Journal of Accountancy , 1-5.
