Tax CH 10 LS

The QBI deduction cannot exceed ______.

the greater of 50 percent of W-2 wages, or 25 percent of W-2 wages plus 2.5 percent of the unadjusted basis of qualified property

Under the check-the-box regulations, an LLC ______.

with more than one member is treated as a partnership with a single corporate member is treated as a division or branch of the corporation

The employee portion of Federal payroll taxes is ______.

withheld from the employee's paycheck by the employer and remitted to the federal government

Gary's sole proprietorship has qualified business income of $2 million, paid W-2 wages of $550,000, and owns depreciable property with an unadjusted basis of $300,000. Gary's QBI deduction is ______.

$275,000

A married couple filing a joint return can take a 20 percent QBI deduction for a service business if their 2020 taxable income is not more than $___

326,600

Which of the following statements regarding LLC characteristics is true?

An LLC provides the liability protection of a limited partnership without the necessity of having a general partner.

At the end of the year, employers provide detailed information regarding salary and withholding to their employees using which of the following forms?

Form W-2

Which of the following items are reported on Schedule K-1?

Partner's distributive share of ordinary income Partner's distributive share of all separately state items

A taxpayer claiming a home office deduction ______.

provides a detailed calculation as part of their tax return to support the deduction

Sole proprietors are not considered employees of their business and are not liable for payroll taxes. Instead, sole proprietors pay _____-_____ tax on their business profits.

self employment

Denise earns salary income of $150,000 during 2019. In addition, she has net earnings from self-employment of $10,000. Denise must pay $_________ of self-employment tax for 2019.

$268

Marcus uses 25 percent of his personal residence as a home office. Marcus rents his home at an annual rental cost of $15,000. If Marcus meets the requirements for a home office deduction, the deductible amount is ______.

$3,750 Reason: $15,000 rental cost × 25% home office use = $3,750 deduction

Earl is a shareholder in Abbott Inc., an S corporation. His Schedule K-1 from the S corporation lists the following items: $50,000 ordinary income, $2,000 dividend income, $12,000 cash distribution, and $(3,000) capital loss. What is the net impact of these items on Earl's taxable income? Assume Earl does not qualify for the QBI deduction.

$49,000

Mark is a limited partner in Lambda Partnership. His Schedule K-1 this year reflects $35,000 share of ordinary income and $50,000 guaranteed payment. What amount of Mark's partnership earnings is subject to self-employment tax?

$50,000 Reason:Only the guaranteed payment is subject to self-employment tax. Since Mark is a limited partner, his share of ordinary income is not subject to self-employment tax.

Jamil has qualified business income of $300,000 and taxable income of $260,000, computed without regard to the QBI deduction or any net capital gain. Jamil's allowable QBI deduction is ______.

$52,000 Reason: Because taxable income is less than qualified business income, the QBI deduction is limited to 20% × $260,000 = $52,000.

A sole proprietor earns $100,000 of revenue, incurs $45,000 of deductible business expenses, and withdraws $30,000 of cash from the business checking account to pay personal expenses. The taxable profit reported on the sole proprietor's Form 1040 (before any allowable Section 199A deduction) is ______.

$55,000 Reason: $100,000 revenue - $45,000 business expenses = $55,000. Cash withdrawal is not included in taxable income.

Wesley is a general partner in Lambda Partnership. His Schedule K-1 this year reflects $35,000 share of ordinary income and $50,000 guaranteed payment. What amount of Wesley's partnership earnings is subject to self-employment tax?

$85,000 both ordinary income and guaranteed payments are subject to self-employment tax for general partners

Which of the following service business is not a qualified business for purposes of the QBI deduction?

(1) Consulting business (2) Law firm (3) Accounting firm

Which of the following information is reported on an employee's Form W-2?

(1) Employee payroll tax withheld (2) Gross salary or wages paid (3) Employee income tax withheld

Which of the following taxpayers would qualify for a home office deduction?

(1) Grant, a psychologist, uses a room in his home exclusively to meet with patients and perform business administrative tasks. (2) Jane, a landscaper, uses a small room in her house exclusively for business administrative activities. Need help? Review these concept resources.

Which of the following amounts can an employer deduct for an employee working in a trade or business?

(1) Gross salary and wages paid (2) Employer payroll tax paid

If a sole proprietorship incurs a loss for the tax year, ______.

(1) and such loss exceeds the owner's other income, the excess can be carried forward as an NOL (2) such loss may be deductible against the owner's other income for the year

The self-employment tax on profit of a sole proprietorship is ______.

(1) computed on Schedule SE of Form 1040 (2) paid in addition to federal income tax (3) a substitute for payroll taxes

The home office deduction ______.

(1) includes depreciation on the portion of the home used as the home office (2) equals a portion of the expenses of maintaining, insuring, and repairing the home

Although a partnership is not a taxable entity, it is required to file an annual information return with the IRS, Form _____.

1065

Straight Company paid David a gross salary of $100,000, and paid employer payroll taxes of $7,650 on his salary. Straight withheld $25,000 of income tax and $7,650 of employee payroll tax from David's salary. Straight's total tax deduction for David's compensation is $

107,650

Straight Company paid David a gross salary of $100,000, and paid employer payroll taxes of $7,650 on his salary. Straight withheld $25,000 of income tax and $7,650 of employee payroll tax from David's salary. Straight's total tax deduction for David's compensation is $_____.

107,650

Michael received a Schedule K-1 from Omega Partnership reflecting a $25,000 share of ordinary income and an $18,500 cash distribution. As a result of his ownership of Omega, Michael's taxable income will increase by _____ Assume Michael does not qualify for any QBI deduction.

25,000

Giga Company paid $50,000 in salary to Mary in 2020. The employee payroll tax owed by Mary on this salary is $___

3,825

Which of the following are business characteristics of a sole proprietorship?

No legal identity separate from its owners Unincorporated business

Which of the following is a requirement for a corporation to elect S corporation status?

No more than 100 shareholders Only common stock outstanding

Which of the following are characteristics of a partnership?

Partners can be individuals, corporations, or other partnerships Must have two or more partners Unincorporated entity created by contract

Which of the following statements regarding tax withholding from partnership guaranteed payments is true?

Partnerships are not required to withhold payroll or income taxes from partnership guaranteed payments.

In applying the excess business loss limitation, a taxpayer involved in multiple businesses is allowed to net losses from one business against profits from another.

True

In allocating income and loss items among S corporation shareholders, ______.

all allocations are based on each shareholder's percentage ownership of S corporation stock

In defining the partners' share of partnership profits and losses, the partnership agreement ______.

allows partners to specify different sharing arrangements for special items of income, gain, deduction, or loss

If a taxpayer is involved in multiple businesses, the excess business loss limitation ______.

applies to the aggregate of deductions from all businesses over income and gains from all businesses

Partnership losses that are nondeductible in the current year due to the basis limitation ______.

can be carried forward and deducted in the future when basis is restored

If a sole proprietorship operates at a loss, such loss ______.

can be deducted against the owner's other income, subject to possible limitations

The ordinary income tax on net profit from a sole proprietorship ______.

can only be computed after you combine it with all other income and deduction items of the sole proprietor

A partnership agreement ______.

defines the rights and obligations of the partners stipulates the percentage of profits and losses allocated to each partner

True or false: A partner is taxed on their distributive share of partnership income only if they also receive a cash distribution at least equal to the share of income.

false

The employee portion of payroll tax is owed ______.

in addition to the employer portion

The additional Medicare tax on employees ______.

is 0.9 percent of wages over a threshold amount

A business organized as a sole proprietorship ______.

is owned by one individual or a married couple

A sole proprietor ______.

is permitted a deduction for operating expenses on Schedule C of Form 1040

The QBI deduction ______.

lowers the effective tax rate on business profit earned by sole proprietorships and passthrough entities

S corporation shareholders ______.

must meet eligibility requirements to claim a QBI deduction related to S corporation activities

Under the passthrough approach to taxation of partnership income, ______.

partners include their share of partnership income or loss in the calculation of their taxable income and tax liability

The income of a sole proprietorship is ______.

reported on Schedule C of Form 1040

Sole proprietors are not considered employees of their business and are not liable for payroll taxes. Instead, sole proprietors pay ___ - ___ tax on their business profits.

self employment

An unincorporated business owned by a single individual is referred to as a(n)

sole proprietorship

The home office deduction is limited to ____ ____ of the business before considering the deduction.

taxable income

For taxpayers whose income exceeds the threshold amounts for exemption from the QBI wage limitation, ______.

the wage limitation is phased in

A shareholder who provides services to an S corporation is ______.

treated as an employee and is paid a salary

True or false: All 50 states have statutes to define the characteristics and requirements for partnerships operating within their jurisdiction.

true

The COVID refundable payroll tax credit is only available for wages not paid to employees who were furloughed due to COVID closures.

False

S corporation shareholders bear financial risk only to the extent of their investment in the corporation.

True

True or false: In general, the QBI deduction equals 20 percent of qualified business income.

True

The income of a sole proprietorship is reported on Schedule ___ of Form 1040.

C

William's sole proprietorship earned $15,000 of revenue and incurred $11,000 of expenses before considering the home office deduction. If William uses 10 percent of his home as a home office and incurred qualifying home expenses of $42,000, his net profit (loss) for the year is ______.

$0 Reason: Home office expense deduction is limited to net profit.

For 2020, Anna, a single taxpayer, earned $400,000 of salary income. Her additional Medicare tax liability is ______.

$1,800 Reason: $400,000 - $200,000 threshold amount = $200,000 × .009 = $1,800.

Maxi Company paid $250,000 in salary to Adam in 2020. The employer payroll tax owed on Adam's salary is ______.

$12,162 Reason: $137,700 x 6.2% = $8,537. $250,000 x 1.45% = $3,625. $8,537 + $3,625 = $12,162.

Maxi Company paid $250,000 in salary to Adam in 2020. The employer payroll tax owed on Adam's salary is ______.

$12,479 Reason: $142,800 x 6.2% = $8,857. $250,000 x 1.45% = $3,625. $8,857 + $3,625 = $12,479.

Maxi Company paid $250,000 salary to Adam in 2021. The total employer and employee payroll tax owed on Adam's salary is ______.

$24,957 Reason: $142,800 x (6.2% x 2) = $17,707. $250,000 x (1.45% x 2) = $7,250. $17,707 +$7,250 = $24,957.

A married couple filing a joint return can take a 20 percent QBI deduction for a service business if their 2021 taxable income is not more than

$329,800

Gil is a partner in Delta Partnership. His Schedule K-1 from the partnership lists the following items: $40,000 ordinary income, $2,000 interest income, $10,000 cash distribution, and $(1,000) capital loss. What is the net impact of these items on Gil's taxable income?

$41,000 increase

Noah's basis in Rio Partnership at the beginning of the current year was $45,000. His Schedule K-1 for the year reported $(70,000) ordinary loss and $3,000 dividend income. How much of the reported loss can Noah deduct this year under the basis limitation?

$48,000

Which of the following statements regarding the 2020 QBI deduction is true?

A married couple with taxable income less than $326,600 is eligible for the QBI deduction even if their business pays no W-2 wages.

Frank's sole proprietorship reports $100,000 of net profit on his 2019 Schedule C. If Frank has no other earned income, his self-employment tax liability on this profit is ______. A) $14,130 B) $7,065 C) $15,300

A) $14,130 --> Reason: $100,000 × 92.35% × 15.3% = $14,.130.

When a sole proprietor owes self-employment tax, ______. A) 50 percent of such tax is deductible in computing taxable income B) none of this tax is deductible in computing taxable income C) 100 percent of such tax is deductible in computing taxable income

A) 50 percent of such tax is deductible in computing taxable income

Which of the following are liable for federal and statement employment taxes? A) Individuals working as employees B) Individuals earning only investment income C) Sole proprietor with no employees D) Sole proprietor with employees

A) Individuals working as employees C) Sole proprietor with no employees D) Sole proprietor with employees

Which of the following social programs are funded by federal and state employment taxes? A) Social Security B) Medicare C) Homeless shelters D) Unemployment benefits

A) Social Security B) Medicare D) Unemployment benefits

The 0.9 percent additional Medicare tax applies to ______. A) self-employed individuals when wages and self-employment income combined exceed a threshold amount B) self-employed individuals only when such individuals also earn income as an employee C) employees, but does not apply to self-employed individuals

A) self-employed individuals when wages and self-employment income combined exceed a threshold amount

Angela is a married individual filing a separate return. If she has no wage income and earnings from self-employment of $200,000, her additional Medicare tax liability is ______. A) $0 B) $675 C) $1,800

B) $675 --> Reason: $200,000 = $125,000 threshold = $75,000 × .009 = $675.

Which of the following statements regarding employee liability for payroll taxes is true? A) Employees, not employers, are liable for payroll taxes. B) Employees are liable for payroll taxes, which are computed in the same manner as the employer payroll tax. C) Employees are not liable for payroll taxes; instead, such taxes are paid by employers.

B) Employees are liable for payroll taxes, which are computed in the same manner as the employer payroll tax.

The additional Medicare tax on employees is ______. A) not subject to employer withholding, but must be paid through quarterly estimated tax payments B) subject to employer withholding, with any excess paid on the tax return when filed C) fully paid through employer withholding

B) subject to employer withholding, with any excess paid on the tax return when filed

Which of the following statements regarding employer withholding of income taxes is false?

Employers are required to withhold federal, but not state, income taxes from employee compensation.

Frank's sole proprietorship reports $100,000 of net profit on his 2019 Schedule C. If Frank has no other earned income, what is his 2019 deduction for self-employment tax? A) $7,650 B) $14,130 C) $7,065 D) $15,300

C) $7,065 -->Reason: $100,000 × 92.35% × 15.3% = $14,130 × 50% = $7,065.

A taxpayer claiming a home office deduction ______. A) is not required to detail the deduction on his or her tax return B) does not report the deduction on Schedule C of Form 1040 C) provides a detailed calculation as part of their tax return to support the deduction

C) provides a detailed calculation as part of their tax return to support the deduction

For each of the following partner allocations, indicate whether the item increases, decreases, or has no effect on the partner's tax basis in their partnership interest.

Cash contribution - Increases basis in partnership interest Capital loss - Decreases basis partnership interest Guaranteed payment - Has no effect on basis in partnership interest

Which of the following are legal characteristics of an LLC?

Every member has limited liability for LLC debts. LLC members may be individuals, corporations, partnerships, or other LLCs.

Which of the following are non-tax characteristics of an S corporation?

Corporate entity organized under state law Shareholders protected from liability for corporate debts

The CARES Act of provides payroll tax relief by ______.

Deferring payment of the employer portion of the Social Security tax.

Which of the following statements regarding employer payroll tax responsibilities is false?

Employers are only responsible for paying the employer portion of the payroll tax to the government.

Which of the following statements regarding the cash flow generated by a sole proprietorship is false?

If a sole proprietor uses business cash flows for personal purposes, the withdrawal of cash from the business account is taxable as a dividend.

Which of the following statements regarding taxable business entities is false?

Income generated by an S corporation is subject to corporate income tax.

Which of the following is a qualified business for purposes of the QBI deduction?

Retail business operated by a sole proprietorship

For each of the following partner allocations, indicate whether the item increases, decreases, or has no effect on the partner's tax basis in their partnership interest.

Section 1231 gain= Increases basis in partnership interest Charitable contribution=Decreases basis partnership interest Self-employment income=Has no effect on basis in partnership interest

Which of the following business entities are not subject to an entity-level federal income tax?

Sole proprietorship General partnership Limited partnership

Which of the following statements regarding the application of the QBI deduction and the excess business loss limitation to partnerships is false?

The QBI deduction is computed by a partnership and reported to the partners on their Schedule K-1s.

Which of the following situations would not violate the requirements for a corporation to elect S corporation status?

The corporation issues voting common stock to some shareholders and nonvoting common stock to other shareholders.

Under the check-the-box regulations, which of the following statements regarding a single-member LLC is false?

The default tax status of a single-member LLC is taxation as a corporation.

Which of the following accurately describes the taxation of S corporation items allocated to a shareholder?

The shareholder's pro rata share of S corporation ordinary income will be taxed to the shareholder at his or her marginal tax rate. The shareholder's pro rata share of S corporation capital loss will be deductible against shareholder capital gains from other sources.

Which of the following statements regarding the calculation of federal payroll taxes is false?

Total federal employee payroll tax is 7.65 percent of annual compensation, regardless of the amount of such compensation.

Employer withholding of income taxes from an employee's compensation is based on information provided by the employee to the employer on Form

W-4

The self-employment tax on profit of a sole proprietorship is ______.

a substitute for payroll taxes

A qualifying home office is a space used ______.

exclusively for business activities on a regular basis