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Taxation
Chapter 10 - Sole Proprietorship, Partnerships, LLCs, and S Corporations
| Question | Answer |
|---|---|
| How are corporations like C Corporation taxed? | They are taxed at an entity level. |
| True or false - C Corporation is taxed first, then shareholders may be taxed on distributions (dividends). This can lead to DOUBLE TAXATION. | True |
| What is a sole proprietorship? | A self-employed (a trade by an individual) business that is a profit-seeking activity and provides goods or services to the public. |
| What is graduated payment? | A special allocation of ordinary income to a "working partner" |
| True or false - Partnership CANNOT deduct the guaranteed payment. | False |
| True or false - General partner DO NOT pay the self-employment tax (guaranteed payments + distributive share of ordinary business income) while limited partner DO pay the self-employment tax. | False |
| True or false - For adjusting partner's basis, a partner CANNOT deduct losses greater than the basis. | True |
| What are the two extremes for tax consequences for business forms? | - Taxed form as entity - C Corporation - Ignore the entity and report income to owners - Partnership, LLC, and S Corporation |
| In contrast to the passthrough entities, in which the taxpayers are the owners of those entities, the taxpayers are ___________ for business that are taxed as entities, such as C Corporations. | Corporations |
| C Corporations is taxed first, then shareholders may be taxed on distributions. This is an example of ______ ______. | Double taxation |
| Sole proprietorship - | Self-employed (a trade by an individual) business that is a profit seeking activity (not a hobby) and provides goods or services to the public. - Ex: Madam Mam's in Austin |
| In sole proprietorship, earned income is subject to _________ tax. | Self-employment |
| True or false - In sole proprietorship, cash distributions to owners have cash consequences. | False |
| For Home Office Deduction, one can deduct expenses for using portion of the home IF the officials used exclusively on a regular basis.... (Name three uses) | - As a principal place of business operated by the homeowner - As a place to meet patients, clients, and customers - Administrative/ management and taxpayer has no fixed location for those activities - Ex: Landscaping |
| If the home office qualifies, one can allocate expenses between business and personal use according to.... (List 5 things) | - Utilities - Home mortgage interest and taxes - Insurance - Repairs - Depreciation |
| True or false - Home office deduction CANNOT exceed taxable income of the business before this deduction and CANNOT cause an NOL. | True |
| What are the two types of partnership and define each of them. | General partner (has unlimited liability) and limited partner (is only liable for contributed capital - responsible for how much they put in) |
| Limited liability partnership (LLP) is for _______ _______. | Professional services |
| In limited liability partnership, ______ partners are not liable for malpractice of other partners and are personally liable for their own malpractice. | General |
| True or false - When forming a partnership, a contribution is a TAXABLE event. | False |
| Partnerships file Form _____ to document taxable income, while sole proprietorships file on Schedule C on Form ______ to document their taxable income | 1065; 1040 |
| What are the two things about a publicly traded partnership? | Partnership interests are traded on an established securities market and these types of partnership are generally taxed as corporations (ex: real-estate investment trust) |
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