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

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. If Mia has no other sources of income, what is her gross income for the year?

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:

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:

If a business is formed as an S corporation, its income may be subject to double taxation.

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

At the beginning of 2015, Quentin purchased a 25 percent general partner interest in Maxim Partnership for $30,000. Quentin's 2015 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, 2016, 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 2015 return? b. Compute Quentin's recognized gain on sale of his Maxim interest.

Which of the following statements concerning partnerships is false?

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?

Which of the following amounts are not subject to self-employment tax?

Alice is a partner in Axel Partnership. Her share of the partnership's current ordinary business income was $100,000. She received a $60,000 cash distribution from the partnership on December 1. Assuming that Alice's marginal tax rate is 39.6%, calculate her after-tax cash flow from the partnership this year.

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?

A limited liability company with more than one member is generally considered a partnership for federal tax purposes.

Loretta is the sole shareholder of Country Collectibles, a calendar year S corporation. Although Loretta spends at least 40 hours per week supervising Country Collectible's employees, she has never drawn a salary from the business. Country Collectibles has been in existence for five years and has earned a profit every year. Loretta withdraws $100,000 cash from the S corporation each year. Which of the following statements accurately describes the tax consequences of these withdrawals?

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.

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.

During 2015, Scott Howell received a salary of $125,000. The social security base amount for 2015 was $118,500. How much payroll tax should have been withheld from Scott's salary for 2015?

Sue's 2015 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?

The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.

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

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