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

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.

Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.

In 2017,Mike Elfred received a $165,000 salary from his employer and generated $39,000 net earnings from self-employment from his small business.Which of the following statements is true?

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.If Mia has no other sources of income,what is her gross income for the year?

Cramer Corporation and Mr.Chips formed a partnership in which Cramer is the general partner and Mr.Chips is a limited partner.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?

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?

Which of the following statements about S corporations is true?

Cactus Company is a calendar year S corporation with the following current year information: On January 1,John James bought 50% of Cactus Company stock for $30,000.How much of the operating loss may John deduct on his Form 1040?

Matthew earned $150,000 in wages during 2017.FICA taxes withheld by his employer would have been $11,475.

If a partner's share of partnership losses exceeds basis,the excess is not deductible in the current year and cannot be carried forward for deduction in the future.

Ted is a 20 percent general partner in Bevo. Bevo Partnership had the following financial activity for the year: a.Compute Ted's share of partnership ordinary income and separately stated items. b.If Ted's adjusted basis in his Bevo interest was $30,000 at the beginning of the year,compute his adjusted basis at the end of the year.Assume that Bevo's debt did not change during the year. c.How would your basis computation change if Bevo's debt at the end of the year as $50,000 less than its debt at the beginning of the year?

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

If a business is formed as an S corporation,its income may be subject to double taxation.

A limited liability company is always taxed as a partnership,regardless of the number of its members.

The shareholders of an S corporation must pay self-employment tax on their share of the corporation's ordinary income.

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 Cramer's tax basis in its partnership interest?

Funky Chicken is a calendar year S corporation with the following current year information: On January 1 June Cross bought 60% of Funky Chicken for $45,000.She then loaned the company $20,000.How much of the operating loss may Cross deduct on her Form 1040?