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

Sue's 2012 net (take-home) pay was $23,805. Her only payroll deductions were for payroll taxes and federal income tax. Federal income tax withholdings totaled $4,500. What was the amount of her gross wages for the year?

Perry is a partner in a calendar year partnership. His Schedule K-1 for the current tax year showed the following: Perry's tax basis in his partnership interest at the beginning of the year was $15,400. How much of the ordinary loss may he deduct on his Form 1040?

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?

Bevo Partnership had the following financial activity for the year: Compute Bevo's ordinary business income for the year and indicate which items must be separately stated.

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?

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.

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:

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?

On January 1, 2012, Conrad Nelson contributed $15,000 cash in exchange for 50 shares of stock in Sterling Inc., an S corporation. Sterling employs Conrad as its director of marketing. Conrad's 2012 salary was $70,000 and his pro rata share of Sterling's 2012 ordinary business income was $16,800. During the year, Conrad received a $9,000 cash distribution with respect to his Sterling stock. Compute Conrad's basis in his Sterling stock on January 1, 2013.

A shareholder in an S corporation can include only his or her own loans to the corporation in tax basis.

Mutt and Jeff are general partners in M&J Partnership and share profits and losses equally. Partnership operations for the current tax year were: Mutt's tax basis in his partnership interest at the beginning of the current year was $12,000. What is his basis at the beginning of next year?

Grant and Amy have formed a new business to be operated through an S corporation. They each own 50% of the corporation's outstanding common stock. During the first year of operations, the business incurred an operating loss of $100,000. In allocating this loss to the shareholders:

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.

Kelly received a $60,000 salary during 2012. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2012 was $110,100. What is the total amount that her employer should have withheld in 2012?

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 Cramer's tax basis in its partnership interest?

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.

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?

Refer to the facts in the preceding problem. 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.

XYZ, Inc. wishes to make an election to become an S corporation for federal tax purposes. Which of the following statements regarding the election is false?