Practice Question
Which of the following is most correct?
A) Corporations and partnerships are subject to corporate income tax while only partnerships are subject to partnership income tax.
B) One of the advantages of the partnership is that all the partners are exposed to limited liability.
C) One of the advantages of the sole proprietorship is that the proprietors are easy to transfer the ownership.
D) One of the advantages of the partnership is that it avoids double taxation.
E) All of the above.
Answer +
Final Answer: D) One of the advantages of the partnership is that it avoids double taxation.
Explanation +
Explanation:
- A) Incorrect. Corporations are subject to corporate income tax. Partnerships pass through income to partners, avoiding corporate-level tax.
- B) Incorrect. Partners in a partnership generally have unlimited liability unless it’s a limited partnership.
- C) Incorrect. Sole proprietorships are not easily transferable since ownership is tied to the individual.
- D) Correct. A key benefit of partnerships is avoiding double taxation—profits are taxed only at the partner level.
- E) Incorrect. Since only D is correct, this blanket statement is false.
Conclusion: The most accurate statement is D.