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Exam 15: Entities Overview

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Question 31

Multiple Choice

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Jorge is a 60-percent owner of JJ LLC (taxed as a partnership) .He is a passive investor in JJ (he doesn't perform any work for JJ) and his marginal ordinary tax rate is 37 percent.Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

A) Business income allocations are not subject to self-employment tax.
B) Business income allocations are not subject to the net investment income tax.
C) Business income allocations are subject to the additional Medicare tax.
D) Business income allocations are taxed at a maximum 23.8 percent tax rate.

E) B) and D)
F) All of the above

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Question 32

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For tax purposes,sole proprietorships pay sole proprietors guaranteed payments as compensation for their services.

A) True
B) False

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Question 33

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Which of the following statements is true for a C corporation incurring a net operating loss (NOL) for a tax year that begins in 2019?

On which tax form do LLCs with more than one owner generally report their income and losses?

Jorge is a 100-percent owner of JJ LLC (taxed as an S corporation) .He works full time for JJ and his marginal ordinary tax rate is 37 percent.Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

Stacy would like to have SST (a business entity)organized as either an LLC (taxed as a partnership)or as a corporation (taxed as a C corporation)generating a 10 percent annual before-tax return on a $600,000 investment.Stacy's marginal tax rate on ordinary income is 37 percent.Stacy's marginal tax rate on individual capital gains and dividends is 23.8 percent,including the net investment income tax.SST will pay out its after-tax earnings every year to either its members or its shareholders.If SST is taxed as a partnership,Stacy would be subject to a 2.9 percent self-employment tax rate and a .9 percent additional Medicare tax.Assume that SST's income is not qualified business income for purposes of the qualified business income deduction.How much would Stacy have after taxes if SST is organized as either an LLC or a C corporation?

In certain circumstances,C corporation shareholders can elect to change the entity to a flow-through entity for tax purposes.

Limited partnerships are legally formed by filing a certificate of limited partnership with the state in which the partnership will be organized.

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

Which legal entity is correctly paired with the party that bears the ultimate responsibility for paying the legal entity's liabilities?

Which of the following statements is true for entity owners who pay the self-employment tax and the additional Medicare tax?

On which tax form does a single-member LLC with one individual owner report its income and losses?

A single-member LLC is taxed as a partnership.

Due to recent tax law changes,C corporations are no longer subject to double taxation.

In 2019,BYC Corporation (a C corporation)had an NOL carryover from 2017 in the amount of $40,000.How much tax will BYC pay in 2019 if it reports taxable income from operations of $35,000 in 2019 before the NOL deduction?

Which legal entity provides the least flexible legal arrangement for owners?

Generally,which of the following flow-through entities can elect to be treated as a C corporation?

What is the tax impact to a C corporation or an S corporation when it makes a (noncash) property distribution to a shareholder?

Roberto and Reagan are both 25-percent owner/managers for Bright Light Inc.Roberto runs the retail store in Sacramento,CA,and Reagan runs the retail store in San Francisco,CA.Bright Light generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store,a ($25,000) loss from the San Francisco store,and a combined $75,000 profit from the remaining stores.If Bright Light is taxed as a partnership and it is decided that both Roberto and Reagan will be allocated 70 percent of his own store's profit,with the remaining profits allocated pro rata among all the owners,how much income will be allocated to Reagan?

Assume you plan to start a new enterprise; you know the probability of having losses for the first three years of operations is almost 90 percent,and you know you will report a substantial amount of income from other sources during those same three years.From a tax perspective,which of the following entity choices would not allow you to offset the entity losses against your income from other sources?