a) Your friend, Alexa, is a local entrepreneur who is thinking of starting up a new business called Venture. Alexa asks you to briefly outline and explain the nontax advantages and disadvantages of the most common legal entities used for operating a business in the United States. Specifically, Alexa wants you to compare and contrast the following legal classifications: sole proprietorship (not formed as an LLC), general partnership, limited liability company (LLC), and a corporation. Be certain to address similarities and differences among the rights and responsibilities of each legal entity and its owner(s), as well as whether the entity and/or the owner(s) is ultimately responsible for paying tax liabilities (both income and payroll taxes) of the business.

b) Alexa now asks you to briefly outline and explain the four basic tax classifications available to legal entities operating a business in the United States. Specifically, Alexa wants you to compare and contrast the following tax classifications: Schedule C sole-proprietorship/single-member LLC, partnership/multiple-member LLC, C corporation, and S corporation. Be certain to address whether each tax classification is treated as a separate taxpaying entity or a flow-through entity. Why may a business owner prefer one type of flow-through entity over the other for both income tax and payroll tax purposes? In addition, explain how the check-the-box regulations are used to determine the tax form of a business entity. By default, how are unincorporated entities treated for tax purposes?

c) Alexa will be the 100% owner of the new business, Venture, which is expected to generate pretax ordinary business income of $200,000. Alexas marginal income tax rate is 37% with a 23.8% rate on qualified dividends and long-term capital gains (including the 3.8% net investment income tax). Show your calculation of how much cash after taxes Alexa will receive from the business, and the overall tax rate on Ventures income in the first year of operation in each of the following independent situations:

1) Alexa organizes Venture as a C corporation, and the business will distribute one-half of its after-tax earnings as a dividend. What tax form(s) will be used to report Ventures profits?

2) Alexa organizes Venture as a single-member LLC. Assume Alexa will be required to pay an additional 2.9% for self-employment tax and 0.9% for the additional Medicare tax. Also, Alexa will be eligible to claim a full deduction for qualified business income on Ventures ordinary business income. What tax form(s) will be used to report Ventures profits?