How does the taxation of a corporation differ from that of a sole proprietorship and partnership?(1 point)

Question

Responses

The earnings of shareholders are taxed directly.
The earnings of shareholders are taxed directly.

The corporation pays no tax.
The corporation pays no tax.

The corporation is taxed, and then shareholders are additionally taxed.
The corporation is taxed, and then shareholders are additionally taxed.

Taxes are said to pass through the corporation and onto owners.

Answer 1

The correct response is:

The corporation is taxed, and then shareholders are additionally taxed.

In a corporation, the business itself is subject to corporate income tax on its earnings. After the corporation pays taxes on its profits, any dividends distributed to shareholders are taxed again at the individual level, leading to double taxation. In contrast, sole proprietorships and partnerships typically don't pay taxes at the business level; instead, profits and losses "pass through" directly to the owners, who report them on their personal tax returns.