Question 1

What kind of deduction is the deduction for qualified business income?

Accepted Answer

A)  A for AGI deduction. 
B)  A from AGI deduction that is not an itemized deduction. 
C)  A from AGI deduction that is an itemized deduction. 
D)  None of the choices are correct. 
A)  A for AGI deduction. 
B)  A from AGI deduction that is not an itemized deduction. 
C)  A from AGI deduction that is an itemized deduction. 
D)  None of the choices are correct.

Question 2

If a C corporation incurs a net operating loss in 2017, it may carry the loss back two years and forward 20 years to offset income in those years. However, it may offset only 80% of the taxable income before the NOL deduction in those years.

Accepted Answer

A) True 
 B)False

Question 3

Roberto and Reagan are both 25 percent owner/managers for Bright Light Inc. Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in San Francisco, CA. Bright Light Inc. generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000) loss from the San Francisco store, and a combined $75,000 profit from the remaining stores. If Bright Light Inc. is an S corporation, how much income will be allocated to Roberto?

Accepted Answer

A)  $31,250 
B)  $62,500 
C)  $75,000 
D)  $125,000 
A)  $31,250 
B)  $62,500 
C)  $75,000 
D)  $125,000

Question 4

If you were seeking an entity with the most favorable tax treatment regarding (1) the number of owners allowed, (2) the flexibility to select your accounting period, and (3) the availability of preferential capital gains rates when selling your ownership interest, which entity should you decide to use?

Accepted Answer

A)  C corporation. 
B)  S corporation. 
C)  Partnership. 
D)  Sole proprietorship. 
A)  C corporation. 
B)  S corporation. 
C)  Partnership. 
D)  Sole proprietorship.

Question 5

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

Accepted Answer

A) True 
 B)False

Question 6

Unincorporated entities with only one individual owner are taxed as sole proprietorships.

Accepted Answer

A) True 
 B)False

Question 7

Sole proprietorships are not treated as legal entities separate from their individual owners.

Accepted Answer

A) True 
 B)False

Question 8

General partnerships are legally formed by filing a partnership agreement with the state in which the partnership will be formed.

Accepted Answer

A) True 
 B)False

Question 9

Tax rules require that entities be classified the same way for tax purposes as they are classified for legal purposes.

Accepted Answer

A) True 
 B)False

Question 10

If C corporations retain their after-tax earnings, when will their shareholders who are individuals be taxed on the retained earnings?

Accepted Answer

A)  Shareholders will be taxed when they sell their shares at a gain. 
B)  Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings. 
C)  Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return. 
D)  None of the choices are correct. 
A)  Shareholders will be taxed when they sell their shares at a gain. 
B)  Shareholders will be taxed in the year they elect to be taxed on undistributed retained earnings. 
C)  Shareholders will be taxed on undistributed retained earnings in the year the corporation files its tax return. 
D)  None of the choices are correct.

Question 11

What document must LLCs file with the state to organize their business?

Accepted Answer

A)  Articles of incorporation. 
B)  Certificate of LLC. 
C)  Articles of organization. 
D)  Partnership agreement. 
E)  None of the choices are correct. LLCs do not have to file with the state to organize their business. 
A)  Articles of incorporation. 
B)  Certificate of LLC. 
C)  Articles of organization. 
D)  Partnership agreement. 
E)  None of the choices are correct. LLCs do not have to file with the state to organize their business.

Question 12

The excess loss limitations apply to owners of all of the following entities except which of the following?

Accepted Answer

A)  C corporations. 
B)  S corporations. 
C)  Entities taxed as partnerships. 
D)  Single member LLCs (owned by an individual taxpayer). 
A)  C corporations. 
B)  S corporations. 
C)  Entities taxed as partnerships. 
D)  Single member LLCs (owned by an individual taxpayer).

Question 13

When an employee/shareholder receives a business income allocation from an S corporation, what taxes apply to the business income allocation?

Accepted Answer

A)  FICA tax only. 
B)  Self-employment tax only. 
C)  FICA and self-employment tax. 
D)  Regular income tax. 
E)  None of the choices are correct. 
A)  FICA tax only. 
B)  Self-employment tax only. 
C)  FICA and self-employment tax. 
D)  Regular income tax. 
E)  None of the choices are correct.

Question 14

Which legal entity provides the least flexible legal arrangement for owners?

Accepted Answer

A)  Corporation. 
B)  LLC. 
C)  Partnership. 
D)  Sole Proprietorship. 
A)  Corporation. 
B)  LLC. 
C)  Partnership. 
D)  Sole Proprietorship.

Question 15

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

Accepted Answer

A) True 
 B)False

Question 16

What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have respectively?

Accepted Answer

A)  100; no limit; no limit 
B)  no limit; 100; 2 
C)  no limit; 100; no limit 
D)  100; 100; no limit 
A)  100; no limit; no limit 
B)  no limit; 100; 2 
C)  no limit; 100; no limit 
D)  100; 100; no limit

Question 17

C corporations and S corporations are separate taxpaying entities that pay tax on their own income.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following legal entities are generally classified as C corporations for tax purposes?

Accepted Answer

A)  Limited liability companies. 
B)  S corporations. 
C)  Limited partnerships. 
D)  Sole proprietorships. 
E)  None of the choices are correct. 
A)  Limited liability companies. 
B)  S corporations. 
C)  Limited partnerships. 
D)  Sole proprietorships. 
E)  None of the choices are correct.

Question 19

On which tax form does a single member LLC with one individual owner report its income and losses?

Accepted Answer

A)  Form 1120. 
B)  Form 1120S. 
C)  Form 1065. 
D)  Form 1040, Schedule C. 
A)  Form 1120. 
B)  Form 1120S. 
C)  Form 1065. 
D)  Form 1040, Schedule C.

Question 20

The C corporation tax rate is significantly lower than the top individual marginal tax rate.

Accepted Answer

A) True 
 B)False

Exam 15: Entities Overview

What kind of deduction is the deduction for qualified business income?

If a C corporation incurs a net operating loss in 2017, it may carry the loss back two years and forward 20 years to offset income in those years. However, it may offset only 80% of the taxable income before the NOL deduction in those years.

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

Unincorporated entities with only one individual owner are taxed as sole proprietorships.

Sole proprietorships are not treated as legal entities separate from their individual owners.

General partnerships are legally formed by filing a partnership agreement with the state in which the partnership will be formed.

Tax rules require that entities be classified the same way for tax purposes as they are classified for legal purposes.

If C corporations retain their after-tax earnings, when will their shareholders who are individuals be taxed on the retained earnings?

What document must LLCs file with the state to organize their business?

The excess loss limitations apply to owners of all of the following entities except which of the following?

When an employee/shareholder receives a business income allocation from an S corporation, what taxes apply to the business income allocation?

Which legal entity provides the least flexible legal arrangement for owners?

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have respectively?

C corporations and S corporations are separate taxpaying entities that pay tax on their own income.

Which of the following legal entities are generally classified as C corporations for tax purposes?

On which tax form does a single member LLC with one individual owner report its income and losses?

The C corporation tax rate is significantly lower than the top individual marginal tax rate.

An Introduction to Tax

Tax Compliance, the IRS, and Tax Authorities

Tax Planning Strategies and Related Limitations

Individual Income Tax Overview, Dependents, and Filing Status

Gross Income and Exclusions

Individual Deductions

Investments

Individual Income Tax Computation and Tax Credits

Business Income, Deductions, and Accounting Methods

Property Acquisition and Cost Recovery

Property Dispositions

Compensation

Retirement Savings and Deferred Compensation

Tax Consequences of Home Ownership

Corporate Operations

Accounting for Income Taxes

Corporate Taxation: Nonliquidating Distributions

Corporate Formation, Reorganization, and Liquidation

Forming and Operating Partnerships

Dispositions of Partnership Interests and Partnership Distributions

S Corporations

State and Local Taxes

The Us Taxation of Multinational Transactions

Transfer Taxes and Wealth Planning

Filters