Currently, Nick's brother Tommy owns an auto repair shop across town. Tommy owns the shop as a sole proprietorship. Nick has suggested that Tommy think about converting the shop to a corporation. Advantages for incorporating the repair shop into a C corporation include which of the following?

I. Allowing the flow-through of corporate profits to shareholders that could be taxed at each owner's marginal tax bracket.
II. Withdrawing accumulated profits at capital gain rates.
III. Providing tax-favored fringe benefits to employee shareholders.
IV. Changing the form of business with ease once a corporation has been formed.

A. II only
B. III only
C. I and III only
D. I and IV only

B. lll only

Explanation:

First point is obviously not correct since the company has to pay its taxes. Second point also does not make sense. Fourth point can also be performed in single owner system. Third point is correct since there are some tax benefits that are provided to employee shareholders of the corporations.

B. III only.

Explanation:

The Company has a mandate of paying its taxes, so the First point from the question above is incorrect. Second point also is not in any way sensible or logical. Fourth point can also be performed in single owner system. The correct point in the question above will have to be the third point since there will be some benefits in taxes which will be provided to the employee shareholders of the company.