Exam 10: Sole Proprietorships, partnerships, llcs, and S Corporations

William is a member of an LLC.His Schedule K-1 reported a $1,200 share of capital loss and a $3,000 share of Section 1231 gain.William recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 Section 1231 loss on the sale of business equipment.What is the net effect of these gains and losses on William's taxable income?

At the beginning of 2019,Quentin purchased a 25 percent general partner interest in Maxim Partnership for $30,000.Quentin's 2019 Schedule K-1 reported that his share of Maxim's debt at year-end was $20,000 and his share of ordinary loss was $42,000.On January 1,2020,Quentin sold his interest to another partner for $5,000 cash. a.How much of his share of Maxim's loss can Quentin deduct on his 2019 return? Assume that the excess business loss limitation does not apply. b.Compute Quentin's recognized gain on sale of his Maxim interest.

Which of the following statements about S corporations is true?

A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.

Funky Chicken is a calendar year general partnership with the following current year information: On January 1 June Cross bought 60% of Funky Chicken for $45,000.How much of the operating loss may Cross deduct currently? Assume the excess business loss limitation does not apply.

Tax savings achieved by operating a business through a pass-through entity,rather than as a C corporation,is an example of entity variable tax planning.

During 2019,Elena generated $24,500 of earnings on Schedule C.If Elena had no other earned income,how much self-employment tax will she owe on her Schedule C net profit?

The allocations made to a partner are reported on Schedule K-1 and are referred to as his or her distributive share of partnership items.

Waters Corporation is an S corporation with two equal shareholders,Mia Jones and David Kerns.This year,Waters recorded the following items of income and expense: Waters distributed $25,000 to each of its shareholders during the year.Calculate the S corporation's ordinary (non-separately stated)income and indicate which items must be separately stated.

Businesses must withhold payroll taxes from payments made to independent contractors and periodically remit such taxes to the state and federal governments.

Aaron James has a qualifying home office.The office is 500 square feet and the entire house is 2,500 square feet.Use the following information to determine his allowable home office deduction:

George and Martha formed a partnership by each contributing $5,000 cash.The partnership then borrowed another $60,000 to finance its operations.If George and Martha are both general partners,compute each partner's initial basis in his/her partnership interest.

A partnership is an unincorporated business activity owned by at least two taxpayers.

Which of the following statements regarding a partner's tax basis in a partnership interest is true?

A limited liability company that has only one member is generally treated as a disregarded entity for federal tax purposes.

Debbie is a limited partner in ADK Partnership.Her partnership Schedule K-1 reports $19,000 ordinary business income,$2,000 long-term capital gain,and $830 dividend income.Which of these items are subject to self-employment tax?

All general partners have unlimited personal liability for the debts of the entity.

Loretta is the sole shareholder of Country Collectibles,a calendar year S corporation.Although Loretta spends at least 40 hours per week supervising Country Collectible's employees,she has never drawn a salary from the business.Country Collectibles has been in existence for five years and has earned a profit every year.Loretta withdraws $100,000 cash from the S corporation each year.As a result of an audit,the IRS asserts that $75,000 of the cash withdrawal should be considered a salary payment to Loretta.What are the payroll tax consequences of this recharacterization?

Matthew earned $150,000 in wages during 2019.FICA taxes withheld by his employer would have been $11,475.

During the current year,Margie earned wage income of $300,000.If Margie is single,which of the following statements regarding her Medicare tax liability is true?