Exam 10: Sole Proprietorships and Flow-Through Entities

An S corporation shareholder can only deduct losses of the S corporation to the extent he or she has positive stock basis.

Greg and Samantha plan to establish a business in which they will both materially participate.They are both in the 33% marginal tax bracket.Although they expect the business to be very successful in the long-run,they project losses of approximately $100,000 for each of the first five years.Due to potential environmental concerns,limited liability is very important for the owners.Which form of business entity should they select considering both tax and nontax factors?

The S corporation income tax return includes all of the following except

The entity concept of a partnership views the partnership as separate from the partners and permits certain transactions between the partner and the partnership.

Limited liability companies are generally taxed as partnerships unless the company elects to be taxed as a corporation.

For 2015,compare the income and FICA or self-employment tax burdens of an individual in the 25 percent marginal income tax bracket who owns a business that has operating income of $50,000 if the business is (a)a C corporation or (b)a sole proprietorship.The owner takes $30,000 out of the business as a salary.

Sam has $80,000 of net income from his sole proprietorship in 2015.What is his deduction for AGI for self-employment taxes?

Which of the following does not affect the basis of S corporation stock?

When may a partner recognize gain on a nonliquidating distribution from the partnership?

S corporations never pay any income taxes.

The limited liability partnership form of business offers partners protection from partnership debts.

For 2015,compare the income and FICA or self-employment tax burdens of a couple in the 33 percent marginal income tax bracket who jointly own a business with $120,000 of operating income if the business is a partnership or an S corporation.The husband and wife each take $50,000 out of the business as salary.

What is the difference between a limited partnership and a general partnership?

Ray,Ronnie and Joe are partners in a limited partnership.Ray and Ronnie,the limited partners,each own 45 percent of the partnership and Joe,the general partner,owns the other 10 percent.The partnership incurs $50,000 of nonrecourse debt and $100,000 of recourse debt.What effect do the debts have on Ray's basis?

What is the difference between recourse and nonrecourse debt for a partnership?

When does a partner recognize gain on a distribution?

Simpco,an S corporation,has gross operating revenue of $450,000,cost of sales of $150,000,salaries and FICA taxes for employees of $40,000,a $25,000 Section 179 expense deduction,$10,000 of other depreciation,interest income of $2,000,a $4,000 capital loss,and a $500 charitable contribution deduction.What are the corporation's net income and its separately stated items?

____ 10.Recourse debts can only be satisfied with the property used as collateral.

There are special rules for an S corporation that must be followed when the corporation decides to liquidate.

Candi purchased a 10 percent limited partnership interest in rental property for $30,000.The partnership has a $1,300,000 mortgage that is secured by the building.During the current year,the partnership reports a total loss of $200,000 from the rental building.What is Candi's deductible loss and the amount of her loss carryover if her only other income/loss items are $50,000 in salary,an $8,000 capital loss on some stock,and $5,000 of bond interest income?