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Exam 11: Entities Overview

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Question 21

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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?

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

E) All of the above
F) C) and D)

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Question 22

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What tax year-end must an unincorporated entity with only one owner adopt?

A) The entity is free to adopt any tax year-end.
B) The entity must adopt the same year-end as its owner.
C) The entity must adopt a calendar year-end.
D) The entity may adopt any year-end except for a calendar year-end.

E) A) and B)
F) All of the above

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Question 23

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

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

Jorge is a 60 percent owner of JJ LLC (taxed as a partnership) .He is a passive investor in JJ (he doesn't perform any work for JJ) and his marginal ordinary tax rate is 37 percent.Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

David would like to organize HOS (a business entity)as either an S corporation or as a corporation (taxed as a C corporation)generating a 12 percent annual before-tax return on a $300,000 investment.David's marginal tax rate is 24 percent and the corporate tax rate is 21 percent.David's marginal tax rate on individual capital gains and dividends is 15 percent.HOS will pay out its after-tax earnings every year to either its members or its shareholders.If HOS is taxed as an S corporation,David's business income allocation would be subject to a 3.8 percent net investment income tax (he is a passive investor in the business)and the business income allocation would qualify for the deduction for qualified business income. a.How much would David keep after taxes if HOS is organized as either an S corporation or a C corporation? b.What are the overall tax rates (combined owner and entity level)if HOS is organized as either an S corporation or a C corporation?

S corporation shareholders are subject to self-employment tax on business income allocations from the S corporation if they are actively involved in the S corporation's business.

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

What is the tax impact to a C corporation or an S corporation when it makes a (noncash) property distribution to a shareholder?

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

Beginning in 2018,C corporations are no longer subject to double taxation.

On which form is income from a single member LLC with one corporate (C corporation) owner reported?

Entities taxed as partnerships can use special allocations to reward owners based on their responsibilities,contributions,and individual needs.

Robert is seeking additional capital to expand ABC Inc.In order to qualify ABC as an S corporation,which type of investor group could Robert obtain capital from?

Generally,which of the following flow-through entities can elect to be treated as a C corporation?

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

In certain circumstances,C corporation shareholders can elect to change the entity to a flow-through entity for tax purposes.

Jorge is a 100 percent owner of JJ LLC (taxed as an S Corporation) .He works full-time for JJ and his marginal ordinary tax rate is 37 percent.Which of the following statements is true regarding Jorge's tax treatment of business income allocated to him from JJ?

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?

An unincorporated entity with more than one owner is,by default,taxed as a partnership.