Your three friends from Wyoming inherited an old dude ranch. They now plan to turn it into a pasture for retired racehorses. Serenity Stables wants to open its doors by spring of 2020. After going to several small business seminars, your 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 explain to them that LLC 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 instead recommend
A) sole proprietorship.
B) general partnership.
C) limited liability company.
D) S corporation.

Question

Quizplus · Accepted Answer

Unlike the limited liability company, the S corporation form of business ownership avoids paying self-employment taxes on total earnings and still provides limited liability to business owners who are U.S. citizens.

Your Three Friends from Wyoming Inherited an Old Dude Ranch