Question

A few years back, your three U.S. born friends that live in the State of Wyoming inherited a dude ranch that they plan to turn into a retirement haven for race horses. Peaceful Pastures wants to open its doors by spring of 2018. After attending several small business seminars, the three friends are certain they need limited liability. The high-risk, labor-intensive business will require a sizeable investment including an air-conditioned barn, several fenced-in pastures and loads of animal feed. You recently heard that one form of business ownership requires owners to pay self-employment taxes on the entire amount of earnings. You are fairly certain this is one tax liability your friends would like to avoid. You recommend:

Answer 1

Answer: that the friends rather register an S corporation

Explanation: An S corporation is a type of corporation, also known as an S subchapter. An S corporation qualifies for certain Internal Revenue Code requirments. These requirements allow an S Corp to be taxed as a partnership, while still being able to reap the benefits of an incorporation. This means that under this code, the S Corp will not pay any income taxes. The only businesses that can register for Subchapter S of Chapter 1 under the Internal Revenue Code, are those businesses who have 100 shareholders or less, so the three US friends qualify for this.