Question

A partnership possesses two key advantages:

1) It is easily and inexpensively formed, and
2) its income is allocated on a pro rata basis to partners and taxed on a(n) _____ basis, allowing the partnership to avoid higher _____ income taxes.

a) Individual; Individual
b) Corporate; Corporate
c) Individual; Corporate
d) Corporate; Individual

Answer 1

The income of a partnership is taxed on an individual basis to each partner, avoiding the higher corporate income taxes. Therefore, the correct answer is (c) Individual; Corporate.

Step-by-step explanation:

One key advantage of a partnership is that it is easily and inexpensively formed. Additionally, a partnership's income is allocated on a pro rata basis to the partners and taxed on an individual basis, allowing the partnership to avoid higher corporate income taxes. Therefore, the correct answer to the student's question is: its income is taxed on an individual basis, allowing the partnership to avoid higher corporate income taxes. The choices provided for the blank spaces correspond to: a) Individual; Individual, b) Corporate; Corporate, c) Individual; Corporate, and d) Corporate; Individual. The appropriate fill-ins for the blanks would be 'Individual' for the first blank and 'Corporate' for the second blank, making option (c) the correct answer.