Exam 1: Introduction to Taxation

What is the earliest year to which a corporation can utilize a net operating loss realized in 2018?

Which of the following business entities has no provision that limits some or all of the liability of the owner?

Ethan and Mia are married and file a joint tax return. Their taxable income is $200,000 in 2018. What is their marginal tax rate?

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. How much tax will Jerry pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as an S corporation?

Why are S corporations and partnerships called flow-through entities?

Vertical equity asserts that persons in similar circumstances should face similar tax burdens.

William is single and had salary income from his position as Chief Financial Officer of Zippy Bank of $450,000 putting him in the 37% marginal tax bracket. He also had $35,000 in income from the dividends on the stock of his previous employer. What tax rate will apply to William's dividend income?

Cragen Corporation has gross income of $625,000 and operating expenses of $418,000. What is its taxable income? What is its income tax liability in 2018?

Mason owns 45% of an S corporation that reported net income of $105,000 for the year. During the year, $20,000 was distributed to Mason from the corporation. How much should Mason include in his taxable income for the year?

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. What is Jerry's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as an S corporation?

Emma owns 40% of Johnson, Inc., a regular C corporation, that reported a net loss of $50,000 for the year. Emma acquired her stock on January 1 of the current year by investing $4,000 cash. In July, the corporation took out a bank loan for $25,000. How much of the loss can Emma deduct on her tax return for the year?

Which of these persons never pays taxes directly?

Identify the following with an E if all or part of the item could be an exclusion from gross income or D if all or part of the item could be a deduction. -Scholarship f. State income taxes b. Medical expense g. Tax exempt interest c. Charitable contribution h. Student loan interest d. Life insurance proceeds i. Social Security benefits e. Inheritances j. The value of food stamps

All limited liability companies (LLCs) can file their tax returns as partnerships.

Harold has a 50% interest in a general partnership that has a $14,000 loss for the year. He materially participates in the partnership, his basis in the partnership is $10,000 at the beginning of the year. He also has salary from other employment of $46,000. If he is single and claims the standard deduction, what are his taxable income and tax liability, respectively, in 2018?

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. What is Matt's income tax savings (rounded to the nearest dollar) for the first year if they organize the business as a partnership?

Which of the following types of taxes is not levied by the U.S. government?

Name and describe two types of taxes other than the income tax. Give example of each.

Briefly compare a sole proprietorship to a corporation as a business entity.

Jerry and Matt decide to form a business. Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest. The business will take out a $25,000 loan to cover the balance of their working capital needs. They expect that the business will have a loss of $38,000 for the first year. In the second year, the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry. Jerry is in the 32% marginal tax bracket and Matt is in the 24% marginal tax bracket. Their marginal tax brackets will not change as a result of profit or loss from this business. What is Jerry's basis at the end of the second year if they organize the business as a partnership?