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

During 2017,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?

Carter's share of a partnership's operating loss is $17,200.His tax basis in his partnership interest before any adjustment for this loss is $26,000.Carter may deduct the full loss on his individual tax return.

John's share of partnership loss was $60,000.He had only enough tax basis to deduct $34,000 of the loss.He may deduct the remaining loss against other income in the following year,regardless of what happens in the partnership.

Gavin owns a 50% interest in London Partnership.His tax basis in his partnership interest at the beginning of the year was $20,000.His partnership Schedule K-1 showed the following: Calculate Gavin's tax basis in his partnership interest at the end of the year?

At the beginning of year 1,Paulina purchased a 25% general partner interest in Gamma Partnership for $25,000.Paulina's partnership Schedule K-1 for year 1 reported that her share of Gamma's debt at year-end was $10,000 and her share of ordinary loss was $5,000.On January 1,year 2,Paulina sold her interest to another partner for $22,000 cash (including relief of liabilities).Compute Paulina's gain or loss on the sale of her partnership interest.

Rebecca has a qualifying home office.The room is 600 square feet and the entire house is 3,000 square feet.Use the following information to determine her allowable home office deduction:

Armond earned $10,000 of profit from a sole proprietorship in 2017.If he also has $140,000 of salary income,how much self-employment tax will he owe?

Cramer Corporation and Mr.Chips formed a general partnership.Cramer contributed $500,000 cash,and Mr.Chips contributed a building with a $500,000 FMV and $300,000 tax basis.The partnership immediately borrowed $700,000 of recourse debt.What is Mr.Chips' tax basis in its partnership interest?

In 2017,William Wallace's sole proprietorship,Western Wear Apparel,generated $140,769 Schedule C net profit ($130,000 net earnings from self-employment).In addition,William recognized a $25,000 Section 1231 gain on a sale of land formerly used by the business as a parking lot.The business checking account earned $250 interest income. a.Which of these income items are subject to self-employment tax? b.Compute Williams' 2016 self-employment tax,assuming he has no other earned income. c.Compute the total increase in William's 2016 taxable income attributable to his business.

Partners may deduct on their individual income tax returns an amount equal to 100% of self-employment tax paid.

Which of the following amounts are not subject to self-employment tax?

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

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.

Which of the following statements regarding the home office deduction is true?

Randolph Scott operates a business as a sole proprietorship.This year his net profit was $10,570.For tax purposes this amount should be reported on:

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

In contrast to a partnership,every member of an LLC has limited liability for the LLC's debts.

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?

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?

Which of the following statements about partnerships is false?