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

Mr. Dilly has expenses relating to a qualifying home office of $14,320. The taxable income generated by the business before any deduction of home office expenses was $13,700. His allowable home office deduction is $14,320.

During 2016, 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.

Bevo Partnership had the following financial activity for the year: Gross receipts from sales \ 860,000 Cost of goods sold (390,000) Operating expenses () Business meals and entertainment (20,000) Section 1231 gain on equipment sale Distribution to partners ()

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

Haddie's Hats is a regular corporation. The business must file an income tax return each year to report its taxable income or loss and pay any related taxes.

Drake Partnership earned a net profit of $400,000. Four partners share profits and losses equally. No cash was distributed. The partners will report taxable income from the partnership on their personal income tax returns for the year.

A corporate shareholder usually cannot be held personally liable for the debts arising from the corporate business.

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: Sales revenue \ 500,000 Interest income Long-term capital gain Cost of goods sold (250,000) Salary and wages () Other operating expenses (55,000) 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?

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: Sales revenue \ 500,000 Interest income Long-term capital gain Cost of goods sold () Salary and wages ) Other operating expenses ) Waters distributed $25,000 to each of its shareholders during the year. If Mia's adjusted tax basis in her partnership interest was $50,000 at the beginning of the year, compute her adjusted tax basis in her partnership interest at the end of the year.

A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.

Adam and Barbara formed a partnership to construct an apartment building. Adam contributed $500,000 cash and Barbara contributed land ($500,000 FMV and $250,000 basis) in exchange for a 50 percent interest in AB Partnership. Immediately after its formation, the partnership borrowed $600,000 from a local bank to begin construction. Compute each partner's initial basis in their partnership interest, assuming that: a. Adam and Barbara are both general partners. b. Adam is a limited partner and Barbara is a general partner.

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?

Which of the following statements regarding S corporations is true?

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.

Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports $50,000 ordinary business income, $22,000 guaranteed payment, $5,000 long-term capital gain, and $400 dividend income. Which of these items are subject to self-employment tax?

Alex is a partner in a calendar year partnership. His partnership Schedule K-1 for the current tax year showed the following: Ordinary business income $\quad$$\quad$$\$ 41,000$ Short-term capital loss $\quad$$\quad$$\quad$$\mathbf { 1 , 5 0 0 }$ Alex has a $7,000 loss carryforward from the partnership last year, which he could not deduct because of the basis limitation. What is his tax basis in his partnership interest at the end of the current tax year?

On January 1, 2016, Laura Wang contributed $30,000 cash in exchange for 30 shares of stock in Suki Inc., an S corporation. On May 12, Laura loaned $8,500 to Suki in exchange for a 5-year interest-bearing note. Laura's pro rata share of Suki's 2016 ordinary business loss was $34,100, and she received no cash distributions during the year. Which of the following statements is accurate?

Funky Chicken is a calendar year S corporation with the following current year information: Operating loss \ (300,000) Liabilities: Notes payable, Big Bank 30,000 Notes payable, June Cross 20,000 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?

Jackie contributed $60,000 in cash to a partnership for a 50% interest. This year, the partnership earned $200,000 ordinary business income, made a $20,000 contribution to the United Way, and distributed $25,000 cash to Jackie. Her tax basis in the partnership at year end is: