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Текст 3






Small Business in the USA: An S-Corporation

Is not Always Best. It is generally believed that small companies should incorporate as S-corporations. While an S-corporation enjoys many corporate attrib­utes (the main is that the owners of a corporation do not expose their personal assets to corporate liability), it is treated like a partnership for purposes of determining its Federal income tax liability. At the end of each fiscal year, its total earnings (or losses) are prorated to each share­holder, and these earnings (or losses) are incorporated into their indi­vidual income tax returns.

Among the advantages of the S-corporation for small business is no " double taxation" — paying an income tax on corporate net income, and then paying an individual income tax on the dividend income sub­sequently distributed by the corporation.

Thus, an S-corporation " generally will not be liable for federal income tax." If losses are incurred during the start-up period (or any other period), these losses can be deducted each year from the share­holders' tax returns. All income, losses, credits, and deductions are " washed through" the S-corporation at the end of each fiscal year, and carried directly to the individual tax return for each shareholder. Being emptied out at the end of each fiscal year, the S-corporation has no retained earnings account.

For most of small businesses, the S-corporation has long been the preferred corporate structure. The operational accounting is simpler, and accounting, legal, and administrative expenses are minimized. Shareholders receive the immediate benefits of earnings without " dou­ble taxation", and the shelter of tax deductive losses on their individual tax returns. There are sound reasons to state that this is generally the most popular corporate struture.

However, for small businesses that are growing rapidly, the con­ventional C-corporation status may turn out tot> e more preferable. The primary motivation for such a change would be the ability to retain and reinvest earnings in the expanding business.

The maximum Federal income tax rate for C-corporation is 34 per­cent for taxable income up to $10.0 million, whereas the maximum tax rate on S-corporation income is now the maximum individual rate of 39.6 percent. At the other end of the range, the Federal tax on corpo­rate income of $100, 000 is $22, 250 for a C-corporation, whereas the incremental tax on this income added to other income of the share­holder in an S-corporatin could be as high as $39, 600 if the sharehold­ers are already in the maximum tax bracket. If the business is striving to retain and reinvest all possible cash during a period of strong growth, it will obviously forgo distributing cash dividends thereby avoiding the problem of " double taxation."

The maximum tax be will be effectively reduced by more than 16 percent, and substantial funds will then be retained to meet the capital needs of the expanding enterprise. Discounting the effects of deprecia­tion charges, this shift of corporate structure yields an almost 10 per­cent increase in net cash flow.

 

Ответьте на вопросы к тексту:

1. What types of corporations are described?

2. What is the maximum corporation tax rate for taxable income up to $10.0 million?

3. What is the main advantage of the S-corporation status?

4. What does the term " double taxation" mean?

5. In what case is the C-corporation status more preferable than the S-corporation status?

 

Текст 4

Opium for tea

Trade between China and the outside world has always been important for Hong Kong. In 1841, the British seized Hong Kong Island. They wanted to trade with China and having their own port meant they could force China to accept foreign trade. They could also continue to sell opium, which was shipped from India, to Chinese merchants. Profits from the opium trade paid for the Chinese tea, silks and porcelain that Britain wanted to import.

China resisted the illicit opium trade but was defeated by the British in two Opium Wars. The Chinese had to sign a treaty giving Britain the Kowloon peninsula in 1860. Britain took over another part of the mainland, called the New Territories, as well as 235 islands in 1898. These were on a lease from China, which gave the land to Britain for 99 years.

Hong Kong remained a British colony despite the victory of the Chinese Communist Party, which took over the rest of China, except Taiwan, in 1949. The colony's population grew from one million in 1946 to five million by 1980, as Chinese refugees poured in.

The economy also grew fast. In the 1970s, when Deng Xiaoping liberalised China's socialist economy, Hong Kong boomed because it acted as a trading link with the West. The British never gave Hong Kong's people full democracy, as they thought it might offend the Beijing government and harm trade between the colony and China.

 

China in charge

The Communist Chinese government never recognised the treaties that gave Hong Kong to the British. Britain knew that it would not be possible to keep Hong Kong and Kowloon when the lease on the New Territories ended in 1997. When organising the return of Hong Kong to China, the priority for both the Chinese and the British was to ensure business as usual.

There were long, difficult and secret negotiations between Britain and China. The result was the Sino-British Declaration of 1984, by which China agreed to maintain Hong Kong's capitalist system for 50 years after the colony was returned. There were some nervous moments, but Hong Kong's trade has continued to grow fast. It has the world's busiest container port and it is the financial centre of South East Asia. Both shores of Victoria Harbour are crowded with glittering skyscrapers. Hong Kong now has a higher standard of living than Britain.

Despite reassurances from the Beijing government, Hong Kong people are worried about life under Chinese rule. In 1989, the Chinese government crushed pro-democracy protests in Tiananmen Square in Beijing. The Chinese government has insisted that democracy will not be allowed in Hong Kong and it has abolished the partly-elected Legislative Council. Many Hong Kong residents have bought homes in Canada or Australia, in case things go wrong.


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