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What is a significant tax advantage of a sole proprietorship?
What is a significant tax advantage of a sole proprietorship?
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Practice Questions
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Q1
What is a significant tax advantage of a sole proprietorship?
Double taxation
Pass-through taxation
No tax obligations
Higher tax rates
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Sole proprietorships benefit from pass-through taxation, where business income is taxed only at the owner's personal tax rate.
Questions & Step-by-step Solutions
1 item
Q
Q: What is a significant tax advantage of a sole proprietorship?
Solution:
Sole proprietorships benefit from pass-through taxation, where business income is taxed only at the owner's personal tax rate.
Steps: 6
Show Steps
Step 1: Understand what a sole proprietorship is. It is a type of business owned and run by one person.
Step 2: Learn about taxation. Taxes are money paid to the government based on income.
Step 3: Know what pass-through taxation means. It means that the business income goes directly to the owner's personal income.
Step 4: Realize that in a sole proprietorship, the business itself does not pay taxes separately.
Step 5: Understand that the owner pays taxes on the business income at their personal tax rate, which can be lower than corporate tax rates.
Step 6: Conclude that this is a significant tax advantage because it simplifies taxes and can save money.
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