Tax 15

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 Reason: Akram may offset the loss from the S corporation with his other income and will pay tax of $24,500 ($80,000 - $10,000) x 35%.

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

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

Sole proprietorship S corporation Partnership

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%

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

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

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

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

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 matches Choice, 15% or 20% Corporate (before the DRD) matches Choice, 21% Pension funds matches Choice, 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, under state law, business partnerships can be classified as: (Check all that apply.)

general. limited.

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

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 Reason: A single-member LLC is taxed as a 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 matches Choice, Entity General Partnership matches Choice, General Partner Sole Proprietorship matches Choice, Owner