chapter 10 taxation

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 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 guaranteed payment from a partnership to a partner is ______. (Select all that apply.)

not subject to payroll tax withholding requirements typically received as compensation for services rendered to the partnership

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

paid in addition to federal income tax computed on Schedule SE of Form 1040

The employee portion of payroll tax is owed ______.

in addition to the employer portion

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.

Andrew received a Schedule K-1 from Zeta Partnership reflecting $40,000 share of ordinary income, $65,000 guaranteed payment, and $20,000 cash distribution. As a result of his ownership of Zeta, Andrew's taxable income will increase by what amount? Assume Andrew does not qualify for the Section 199A deduction.

$105,000 Reason: $40,000 OI + $65,000 GP. Cash distribution not included in taxable income.

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.

Frank's sole proprietorship reports $100,000 of net profit on his 2020 Schedule C. If Frank has no other earned income, his self-employment tax liability on this profit is ______.

$14,130 Reason: $100,000 × 92.35% × 15.3% = $14,.130.

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 Reason: $40,000 OI + $2,000 interest income - $1,000 capital loss. Cash distribution does not affect taxable income.

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 Reason: Noah's basis increases by $3,000 for the dividend income, then can be reduced at most by $48,000 of loss.

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.

At the beginning of the current year, Monica's tax basis in her Gamma Partnership interest was $50,000. Her Schedule K-1 from Gamma reports $20,000 ordinary income, $(5,000) capital loss, and $12,000 cash distribution. At the end of the year, Monica's tax basis in her partnership interest is ______.

$53,000 Reason: $50,000 beginning basis + $20,000 OI - $5,000 capital loss - $12,000 cash distribution = $53,000 ending basis.

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 ______.

$675 Reason: $200,000 = $125,000 threshold = $75,000 × .009 = $675.

Frank's sole proprietorship reports $100,000 of net profit on his 2020 Schedule C. If Frank has no other earned income, what is his 2020 deduction for self-employment tax?

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

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 Reason: Both ordinary income and guaranteed payment are subject to self-employment tax.

Level Company paid Joan a gross salary of $80,000, and paid employer payroll taxes of $6,120 on her salary. Level withheld $20,000 of income tax and $6,120 of employee payroll tax from Joan's salary. Level's total tax deduction for Joan's compensation is ______.

$86,120

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 or 107650

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

When a sole proprietor owes self-employment tax, ______.

50 percent of such tax is deductible in computing taxable income

Which of the following items are reported by a partnership as separately stated items? (Select all that apply.)

Dividend income Charitable contributions

Which of the following information is reported on an employee's Form W-2? (Select all that apply.)

Employee payroll tax withheld Gross salary or wages paid Employee income tax withheld

Which of the following statements regarding employee liability for payroll taxes is true?

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

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

Employer payroll tax paid Gross salary and wages paid

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 employer withholding of income taxes is false?

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

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 statements regarding taxable business entities is false?

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

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

Individuals working as employees Sole proprietor with no employees Sole proprietor with employees

A partner's distributive share of partnership income is reported on Schedule

K-1 or K1

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

Limited partnership Sole proprietorship General partnership

Which of the following social programs are funded by federal and state employment taxes? (Select all that apply.) Homeless shelters Medicare Unemployment benefits Social Security

Medicare Unemployment benefits Social Security

Which of the following are characteristics of a partnership?

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

Which of the following statements regarding the basis limitation on deductibility of partnership losses is false?

Partnership losses that are nondeductible under the basis limitation are permanently disallowed.

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 statements regarding calculation of self-employment taxes is correct?

The Social Security tax portion of the self-employment tax is 12.4 percent of net earnings up to a threshold amount. The self-employment tax rates equal the combined employee and employer payroll tax rates.

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 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

W4 or W-4

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

a substitute for payroll taxes

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.

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

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 0.9 percent additional Medicare tax applies to ______.

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

Items of partnership income or deduction that are not included in the calculation of ordinary partnership income or loss are referred to as ----- ------ items.

separately stated

The additional Medicare tax on employees is ______.

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

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

true

The employee portion of Federal payroll taxes is ______.

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