Tax 332 Chapter 15

Shane starts a new business this year and incorporates the business entity as SNB, Inc (taxed as a C corporation). Unfortunately, SNB, Inc. has a slower than expected start and loses $6,800. Assuming a 40% income tax rate, how much income tax will SNB, Inc. pay this year?

$0

Akram owns an S corporation that has generated a $10,000 loss in its first year. Akram has other forms of ordinary income available to offset these losses totaling $80,000. Assuming Akram's marginal tax rate is 35% and a corporate rate of 21%, how much tax will Akram pay on his income assuming there are no other loss limitations?

$24,500

Akram owns a C corporation that has generated a $10,000 loss in its first year. Akram has other forms of ordinary income totaling $80,000. Assuming Akram's marginal tax rate is 35% and a corporate rate of 21%, how much tax will Akram pay on the income?

$28,000

Select the entities that are flow-through entities for tax purposes. (Check all that apply.)

S corporation Sole proprietorship Partnership

Greta is concerned about the level of debt her business has incurred, as she is responsible for its liabilities. Assuming Greta is the sole owner, how could she organize her business to protect herself from the liabilities of the entity? (Check all that apply.)

Single member limited liability company Corporation

Which entity types can generally use either the cash or accrual method of accounting for tax purposes? (Check all that apply.)

Sole proprietorship Partnership S corporation

In general, a taxpayer can deduct ____% of the amount of qualified business income allocated to her from a flow-through entity subject to certain limitations.

20

The deduction for qualified business income (QBI) for flow-through entities is calculated as what percent of qualified business income?

20%

The percent of tax assessed on net investment income above a threshold is:

3.8%

Generally, under state law, which of the following is NOT considered an entity separate from its owner(s)?

A sole proprietorship

Match the tax classification with the required federal income tax return form

C Corporation - 1120 S Corporation - 1120S Partnership - 1065 Sole Proprietorship - Form 1040, Schedule C

A(n) ________ is a separate taxpaying entity unless a valid S election is made for tax purposes.

C corporation

Match the entity with the description of income or loss allocation.

C corporation - No allocation Partnership - Based on owner's agreement S corporation - Based on stock ownership percentage correct Sole proprietorship - All earnings allocated to owner

On their December 31, 2019 tax return, Ecogreen, Inc., a C corporation, suffered a difficult year and generated a loss. What are Ecogreen's options for dealing with the loss for tax purposes?

Carry the loss forward to reduce income in future years

Which of the following legal entity types does not require the owners to formally organize the entity with the state?

General Partnership

Which owner is ultimately responsible for the liabilities of the business?

General partners

Match the type of shareholder with the typical tax rate on corporate dividends.

Individual - 15% or 20% Corporate (before the DRD) - 21% Pension funds - 0%

Select the shareholder-type that is likely to pay a 15% (or 20%) tax on distributions from a C corporation.

Individual shareholders

When an S corporation shareholder does not work for the entity, the _____.

business income allocated to the shareholder is considered to be passive income

Generally, state law classifies business entities as: (Check all that apply.)

limited liability companies. corporations.

Generally, under state law, business partnerships can be classified as: (Check all that apply.)

limited. general.

Jonas, an individual taxpayer, establishes his business as an LLC, for which he is the only member (owner). By default, his business will be treated as a _________ for tax purposes.

sole proprietorship

Shakira starts selling various homemade crafts in her front yard each Saturday morning. She can NOT afford an attorney and so she does not prepare any paperwork. Shakira's business is most likely a(n):

sole proprietorship

Nolan seeks to protect himself from the debts his business is going to incur. Which of the following entities would be the best entity choice for Nolan?

Corporation

Which one of the following legal entity types is best suited for an initial public offering?

Corporation

Match the ultimate responsibility for debt with the legal entity type

Corporation - Entity General Partnership - General Partner Sole Proprietorship - Owner