Olivia and Liam have heard complaints from fellow business owners about the tax burden they face due to their company's business structure. What form of business ownership may involve double taxation?

Question

A. sole proprietorship
B. partnership
C. corporation
D. S corporation

Answer 1

C. corporation

Corporations may involve double taxation, meaning that the corporation itself pays taxes on its profits, and then shareholders pay taxes again on any dividends they receive from those profits. In contrast, sole proprietorships and partnerships generally do not face double taxation, as income is passed through to the owners and taxed only at their individual tax rates. S corporations also avoid double taxation by allowing income to pass through to shareholders, similar to partnerships and sole proprietorships.