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    Choose a business structure

    The business structure you choose influences everything from day-to-day operations, to taxes and how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.

    Choose a business structure

    The business structure you choose influences everything from day-to-day operations, to taxes and how much of your personal assets are at risk. You should choose a business structure that gives you the right balance of legal protections and benefits.

    Content

    Review common business structures

    Combine different business structures

    Compare business structures

    Your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.

    You'll need to choose a business structure before you register your business with the state. Most businesses will also need to get a tax ID number and file for the appropriate licenses and permits.

    Choose carefully. While you may convert to a different business structure in the future, there may be restrictions based on your location. This could also result in tax consequences and unintended dissolution, among other complications.

    Consulting with business counselors, attorneys, and accountants can prove helpful.

    Review common business structures

    Sole proprietorship

    A sole proprietorship is easy to form and gives you complete control of your business. You're automatically considered to be a sole proprietorship if you do business activities but don't register as any other kind of business.

    Sole proprietorships do not produce a separate business entity. This means your business assets and liabilities are not separate from your personal assets and liabilities. You can be held personally liable for the debts and obligations of the business. Sole proprietors are still able to get a trade name. It can also be hard to raise money because you can't sell stock, and banks are hesitant to lend to sole proprietorships.

    Sole proprietorships can be a good choice for low-risk businesses and owners who want to test their business idea before forming a more formal business.

    Partnership

    Partnerships are the simplest structure for two or more people to own a business together. There are two common kinds of partnerships: limited partnerships (LP) and limited liability partnerships (LLP).

    Limited partnerships have only one general partner with unlimited liability, and all other partners have limited liability. The partners with limited liability also tend to have limited control over the company, which is documented in a partnership agreement. Profits are passed through to personal tax returns, and the general partner — the partner without limited liability — must also pay self-employment taxes.

    Limited liability partnerships are similar to limited partnerships, but give limited liability to every owner. An LLP protects each partner from debts against the partnership, they won't be responsible for the actions of other partners.

    Partnerships can be a good choice for businesses with multiple owners, professional groups (like attorneys), and groups who want to test their business idea before forming a more formal business.

    Limited liability company (LLC) 

    An LLC lets you take advantage of the benefits of both the corporation and partnership business structures.

    LLCs protect you from personal liability in most instances, your personal assets — like your vehicle, house, and savings accounts — won't be at risk in case your LLC faces bankruptcy or lawsuits.

    Profits and losses can get passed through to your personal income without facing corporate taxes. However, members of an LLC are considered self-employed and must pay self-employment tax contributions towards Medicare and Social Security.

    LLCs can have a limited life in many states. When a member joins or leaves an LLC, some states may require the LLC to be dissolved and re-formed with new membership — unless there's already an agreement in place within the LLC for buying, selling, and transferring ownership.

    LLCs can be a good choice for medium- or higher-risk businesses, owners with significant personal assets they want protected, and owners who want to pay a lower tax rate than they would with a corporation.

    Corporation

    C corp

    A corporation, sometimes called a C corp, is a legal entity that's separate from its owners. Corporations can make a profit, be taxed, and can be held legally liable.

    Corporations offer the strongest protection to its owners from personal liability, but the cost to form a corporation is higher than other structures. Corporations also require more extensive record-keeping, operational processes, and reporting.

    Unlike sole proprietors, partnerships, and LLCs, corporations pay income tax on their profits. In some cases, corporate profits are taxed twice — first, when the company makes a profit, and again when dividends are paid to shareholders on their personal tax returns.

    Corporations have a completely independent life separate from its shareholders. If a shareholder leaves the company or sells his or her shares, the C corp can continue doing business relatively undisturbed.

    Corporations have an advantage when it comes to raising capital because they can raise funds through the sale of stock, which can also be a benefit in attracting employees.

    Corporations can be a good choice for medium- or higher-risk businesses, those that need to raise money, and businesses that plan to "go public" or eventually be sold.

    Source : www.sba.gov

    Econ: Unit 5 review questions Flashcards

    Start studying Econ: Unit 5 review questions. Learn vocabulary, terms, and more with flashcards, games, and other study tools.

    Econ: Unit 5 review questions

    5.0 3 Reviews

    Which best describes a sole proprietorship?

    Click card to see definition 👆

    A business owned by an individual

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    Which advantage of a sole proprietorship could also be a disadvantage?

    Click card to see definition 👆

    a sole proprietor has full control

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    1/45 Created by jordangrulke

    Terms in this set (45)

    Which best describes a sole proprietorship?

    A business owned by an individual

    Which advantage of a sole proprietorship could also be a disadvantage?

    a sole proprietor has full control

    Why is liability the biggest disadvantage of a sole proprietorship?

    the owner could lose personal property if the business fails

    How does a lack of financial resources for fringe benefits affect a sole proprietor's ability to run a business?

    It makes it difficult for the owner to attract good employees

    Which of the following businesses would most likely be subject to laws that regulate the disposal of dangerous chemicals?

    an auto repair shop

    Why might a limited partnership have a greater ability to raise capital than a general partnership?

    increased attractiveness due to limits on liability

    What does a partner in a limited liability partnership have that a limited partner in a limited partnership does not have?

    business involvement

    Why would someone be willing to share the economic right to business ownership by forming a general partnership?

    to limit liability

    What risk do limited partners face that general partners do not?

    complete dependence on business abilities of others

    What disadvantage do partners and franchisees share?

    limits on control of the business

    What does the board of directors in a corporation do?

    make all major decisions for the corporation

    What happens to the stockholders when a corporation files for bankruptcy?

    the owners can lose only the money they have invested

    The owner of a factory that manufactures clothing buys several clothing stores to sell the clothing the factory produces. This is an example of

    a vertical merger

    Do multinationals have more or fewer regulations than corporations that are in just one country?

    more, because they have to obey laws and pay taxes in more than one country

    What role does the Securities and Exchange Commission fulfill with regard to corporations?

    It regulates the stock market

    Which type of cooperative organization would attract people who wanted to pay a lower price for organic food?

    consumer cooperative

    Which type of cooperative organization would attract people who needed help preparing their income tax returns?

    service cooperative

    Which describes a way the government provides an incentive to a non-profit hospital so that it can offer free services to poor patients?

    not requiring the hospital to pay taxes

    What is the KEY difference between cooperatives and nonprofits?

    Cooperatives benefit their members; nonprofits mainly benefit the public

    Which of the following activities is mostly closely associated with nonprofit professional organizations?

    providing information and training related to specific occupations

    Which term does the Bureau of Labor Statistics use to describe people who once sought work but have given up looking for a job?

    discouraged workers

    Over the past two decades, the US economy has shifted from a manufacturing economy toward an ___________ economy

    service-producing

    Suppose data show an increase in offshoring by US companies. Which of the following describes a possible effect on the unemployment rate?

    the unemployment rate for increase, because jobs formerly taken by US employees are now located in other countries

    Which of the following BEST defines the learning effect theory?

    Which increased education comes an increased efficiency of production, resulting in higher wages

    Which of the following is a practice that US companies might allow to lower costs?

    hiring more part-time workers

    Why is the demand for labor called a derived demand?

    Its s set by the demand for another good or service

    What generally happens to the equilibrium wage when demand for workers is low and supply is high?

    it gets lower

    Which term describes a perceived barrier that may prevent qualified women from receiving promotions to top-level jobs?

    "the glass ceiling"

    How might employers benefit from workplace safety laws?

    Employers can offer lower wages because more employees will want to work in a safer environment

    If an advertising business buys new computers for its employees, how might its productivity of labor be affected?

    it would increase

    How do right-to-work laws diminish union power?

    Unions with fewer members have less influence over management

    Why has union membership fallen in manufacturing industries?

    .Manufacturing companies have laid off union workers due to foreign

    competition.

    When would two sides in a labor dispute bring in a mediator?

    If a strike continues for a long time and neither side can reach an

    agreement.

    In the 1800s, why was there a greater need for labor unions than there

    Source : quizlet.com

    Publication 557 (01/2022), Tax

    Publication 557 (01/2022), Tax-Exempt Status for Your Organization

    Revised: January 2022

    Publication 557 - Introductory Material

    Publication 557 - Introductory Material What's New

    Future developments. . The IRS has created a page on IRS.gov for information about Publication 557, at IRS.gov/pub557. Information about any future developments affecting Publication 557 (such as legislation enacted after we release it) will be posted on that page.Electronic Form 1024. As of January 3, 2022, Form 1024, Application for Recognition of Exemption Under Section 501(a) or Section 521, is available for electronic filing on Pay.gov. As part of the revision, applications for recognition of exemption under Sections 501(c)(11), (14), (16), (18), (21), (22), (23), (26), (27), (28), (29,) and 501(d) can no longer be submitted as letter applications. Instead, these requests must be made on the electronic Form 1024. The IRS will provide a 90-day grace period during which it will continue to accept paper versions of Form 1024 (Rev. 01-2018) and letter applications; however, after April 4 the Form 1024 must be submitted electronically. See Rev. Proc. 2022-8. Also, organizations requesting determinations under Section 521 are now able to use the electronic Form 1024 instead of Form 1028, Application for Recognition of Exemption Under Section 521.Update on mandatory e-filing. The Taxpayer First Act, enacted July 1, 2019, requires tax-exempt organizations to electronically file information returns and related forms. The new law affects tax-exempt organizations in tax years beginning after July 1, 2019.Forms 990-T & 4720 are available for e-filing in 2022. In 2020, the IRS continued to accept paper Form 990-T, Exempt Organization Business Income Tax Return, and Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code, pending conversion into electronic format. As described below, in 2021 the IRS announced e-filing is required for these forms as described below.

    For Form 990-T, any 2020, and any future year Form 990-T with a due date on or after April 15, 2021, must be filed electronically and not on paper.

    For Form 4720, any 2020, and any future year, Form 4720 filed by a private foundation with a due date on or after July 15, 2021, must be filed electronically and not on paper. Organizations other than private foundations that are required to file Form 4720 are encouraged, but not required, to file Form 4720 electronically.

    Forms 990, 990-EZ, & 990-PF e-filing. Form 990, Return of Organization Exempt From Income Tax, and Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation, for tax years ending July 31, 2020, and later MUST be filed electronically.

    Form 990-EZ, Short Form Return of Organizations Exempt from Income Tax, for tax years ending July 31, 2021, and later MUST be filed electronically. The transitional relief applicable to the Form 990-EZ under which the IRS accepted either paper or electronic filing of Form 990-EZ applied only for tax years ending before July 31, 2021.

    More information on software providers is available on the Exempt Organizations Modernized e-File (MeF) Providers page.

    For more information, go to IRS: Recent legislation requires tax exempt organizations to e-file forms.

    Section 501(c)(21) trusts. Form 990-BL, Information and Initial Excise Tax Return for Black Lung Benefit Trusts and Certain Related Persons, will be a historical form beginning with tax year 2021. Section 501(c)(21) trusts can no longer file Form 990-BL and will file Form 990 (or submit Form 990-N, if eligible) to meet their annual filing obligations under section 6033. Some section 501(c)(21) trusts may also be required to file Form 6069, Return of Certain Excise Taxes on Mine Operators, Black Lung Trusts, and Other Persons Under Sections 4951, 4952, and 4953.

    Reminders

    Electronic Form 1024-A. Form 1024-A, Application for Recognition of Exemption Under Section 501(c)(4), must be submitted electronically on Pay.gov.Reporting of donor information (Form 990, 990-EZ, and 990-PF). Final regulations provide that the requirement to report contributor names and addresses on annual returns generally applies only to returns filed by Section 501(c)(3) organizations and Section 527 political organizations. All tax-exempt organizations must continue to maintain the names and addresses of their substantial contributors in their books and recordsIRS not accepting requests for group exemption numbers. The IRS will not accept any requests for group exemption letters starting on June 17, 2020, until publication of the final revenue procedure or other guidance in the Internal Revenue Bulletin. See Notice 2020-36.Automatic revocation. Regarding automatic revocation for the failure to file a return or notice for 3 consecutive years, as required by section 6033, the Taxpayer First Act of 2019, P.L. 116-25, added a requirement that the IRS notify the organization after the organization has failed to file for 2 consecutive years. See Automatic Revocation, later, for more information, including applicability dates.Electronic Form 1023. Form 1023, Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code, is available only as an electronic form filed on Pay.gov. Form 1023-EZ, Streamlined Application, is already on Pay.gov.

    Source : www.irs.gov

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