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

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?

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:

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

During 2012, Scott Howell received a salary of $125,000. The social security base amount for 2012 was $110,100. How much payroll tax should have been withheld from Scott's salary for 2012?

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

Alex is a partner in a calendar year partnership. His partnership Schedule K-1 for the current tax year showed the following: 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?

Which of the following statements regarding limited liability companies is false?

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.

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. She then loaned the partnership $20,000. How much of the operating loss may Cross deduct currently?

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

A partner's distributive share of partnership nondeductible expenses does not decrease his or her tax basis in the partnership interest.

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

The earnings of a C corporation are taxed only at the shareholder level.

At the beginning of 2012, Quentin purchased a 25 percent general partner interest in Maxim Partnership for $30,000. Quentin's 2012 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, 2013, 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 2011 return? b. Compute Quentin's recognized gain on sale of his Maxim interest.

In applying the basis limitation on the deduction of S corporation losses, which of the following statements is true?

Matthew earned $150,000 in wages during 2012. FICA taxes withheld by his employer would have been $11,475.

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?

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

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

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.