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

During 2013, Margie earned wage income of $300,000. If Margie is single, which of the following statements regarding her Medicare tax liability is true?

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.

William is a member of an LLC. His Schedule K-1 reported a $1,200 share of capital loss and a $3,000 share of Section 1231 gain. William recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 Section 1231 loss on the sale of business equipment. What is the net effect of these gains and losses on William's taxable income?

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

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

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?

At the beginning of 2013, Quentin purchased a 25 percent general partner interest in Maxim Partnership for $30,000. Quentin's 2013 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, 2014, 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 2013 return? b. Compute Quentin's recognized gain on sale of his Maxim interest.

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

Businesses are required by law to withhold federal income tax from the compensation paid to their employees.

Sue's 2013 net (take-home) pay was $23,205. 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?

In 2013, 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?

A partnership is an unincorporated business activity owned by at least two taxpayers.