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

During 2015, 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?

On January 1, 2015, 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 2015 ordinary business loss was $34,100, and she received no cash distributions during the year. Which of the following statements is accurate?

A partner's distributive share of partnership profits will increase his or her tax basis in the partnership interest.

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.

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?

Armond earned $10,000 of profit from a sole proprietorship in 2015. If he also has $120,000 of salary income, how much self-employment tax will he owe?

Which of the following statements regarding a partner's tax basis in a partnership interest is true?

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.

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?

In 2015, 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?

On June 1, Jefferson had a basis in his partnership interest of $75,000. On June 2, he received a cash distribution from the partnership of $28,000. All of the cash distribution is taxable.

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

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

Which of the following statements about partnerships is false?

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.

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.

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?

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

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

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?