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Exam 11: Entities Overview

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Question 41

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Which tax classifications can potentially apply to LLCs?

A) Partnership.
B) Partnership and sole proprietorship.
C) S corporation.
D) C corporation.
E) All of the choices are correct.

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Question 42

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Logan,a 50 percent shareholder in Military Gear Inc.(MG) ,is comparing the tax consequences of losses from C corporations with losses from S corporations.Assume MG has a $100,000 tax loss for the year,Logan's tax basis in his MG stock was $150,000 at the beginning of the year,and he received $75,000 ordinary income from other sources during the year.Assuming Logan's marginal tax rate is 24%,how much more tax will Logan pay currently if MG is a C corporation compared to the tax he would pay if it were an S corporation?

A) $0
B) $6,000
C) $12,000
D) $18,000

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Question 43

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Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year ending in 2017?

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

From a tax perspective,which entity choice is preferred when a liquidating distribution occurs and the entity has assets that have declined in value?

Unincorporated entities are typically treated as flow-through entities for tax purposes.

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

General partnerships are legally formed by filing a partnership agreement with the state in which the partnership will be formed.

If an individual forms a sole proprietorship,which nontax factor will be of greatest benefit to the sole proprietor?

When an employee/shareholder receives a business income allocation from an S corporation,what taxes apply to the business income allocation?

Which of the following entity characteristics are generally key drivers for small business owners in deciding which entity to choose?

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

Both tax and nontax objectives should be considered when choosing the entity type for a new business.

The deduction for qualified business income applies to income of all but which of the following tax entity types?

Corporation A owns 10% of Corporation C.The marginal tax rate on non-dividend income for both A and C is 21%.Corporation C earns a total of $200 million before taxes in the current year,pays corporate tax on this income and distributes the remainder proportionately to its shareholders as a dividend.In addition,Corporation A owns 40% of partnership P that earns $500 million in the current year.Given this fact pattern,answer the following questions: a.How much cash from the Corporation C dividend remains after Corporation A pays the tax on the dividend assuming Corporation A is eligible for the 50 percent dividends received deduction? b.If Partnership P distributes all of its current year earnings in proportion to the partner's ownership percentages,how much cash from Partnership P does Corporation A have after paying taxes on its share of income from the partnership? c.If you were to replace Corporation A with individual A [her marginal tax rate on ordinary income is 37% and on qualified dividends is 23.8 percent (including the net investment income tax)] in the original fact pattern above,how much cash does individual A have from the Corporation C dividend after all taxes assuming the dividends are qualified dividends? Consistent with the original facts,assume that Corporation C distributes all of its after-tax income to its shareholders.

A single-member LLC is taxed as a partnership.

Which of the following statements is true for a C corporation incurring a net operating loss (NOL) for a tax year that begins in 2018?

Crocker and Company (CC) is a C corporation.For the year,CC reported taxable income of $550,000.At the end of the year,CC distributed all its after-tax earnings to Jimmy,the company's sole shareholder.Jimmy's marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent,including the net investment income tax.What is the overall tax rate on Crocker and Company's pre-tax income?

Losses from C corporations are never available to offset a shareholder's personal income.

Owners who work for entities taxed as a partnership receive guaranteed payments as compensation.The guaranteed payments are not self-employment income.