Multiple Choice
Which term refers to the group of people who may be affected by a company's actions?
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1. Introduction to Accounting
Types of Accounting
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Which of the following are valid tax classification options available to a Limited Liability Company (LLC) in the United States? Select one answer.
A
Nonprofit organization
B
Sole proprietorship (if single-member)
C
C corporation
D
Partnership (if multi-member)
Verified step by step guidance1
Understand the concept of a Limited Liability Company (LLC): An LLC is a business structure in the United States that combines the limited liability protection of a corporation with the tax benefits of a partnership or sole proprietorship.
Review the tax classification options for an LLC: LLCs are unique because they can choose how they are taxed. The default classification depends on the number of members in the LLC, but they can also elect to be taxed differently by filing specific forms with the IRS.
Analyze the default tax classifications: A single-member LLC is typically taxed as a sole proprietorship by default, while a multi-member LLC is taxed as a partnership. These classifications are based on the IRS's 'check-the-box' regulations.
Consider the election options: LLCs can elect to be taxed as a corporation (either C corporation or S corporation) by filing IRS Form 8832 or Form 2553. This allows the LLC to change its default classification to suit its business needs.
Eliminate invalid options: Nonprofit organization is not a valid tax classification for an LLC. Nonprofits have a distinct legal structure and tax treatment that is separate from LLCs.
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