Exam 19: Taxation of Business Forms and Their Owners

R, a C corporation, has the following information: 2012 2013 Taxable income before charitable deductions \ 30,000 \ 10,000 Charitable contributions 0 3,000 Assume R did not have dividend income, NOL, or capital loss carrybacks in either year.R's taxable incomes for 2012 and for 2013, respectively, are

Ms.G obtained a 40 percent interest in business H on January 1 of the current year for $90,000.At the end of the year, H had the following information: If H is a C corporation, G's A.G.I, at the end of the year is

R is an employee/owner of a C corporation.Q is an employee/owner of an S corporation.Both R and Q's salaries are deductible by the corporations they work for.

Generally, a newly formed business expecting losses in its first few years will provide greater tax benefits if organized as a proprietorship, partnership, or S corporation rather than as a C corporation.

T, a C corporation, receives a dividend of $100 from a 15 percent owned U.S.corporation and has a dividend-received deduction of

The business is an S corporation and T is a 50 percent owner.T is single and has no other tax information. Income from services $\quad$$\$ 100,000$ Net capital loss $\quad$ 2,200 Guaranteed compensation paid to $\mathrm { T } \quad 10,000$ Life insurance premium for $\mathrm { T }$ , payable to T's children $\quad$ 300 Other operating expenses $\quad 54,000$ Ignoring self-employment taxes, T's A.G.I, is

Ms.G obtained a 40 percent interest in business H on January 1 of the current year for $90,000.At the end of the year, H had the following information: If H is a partnership or an S corporation, what is G's A.G.I., assuming she has no other income or deductions for the year?

Individuals and C corporations may reduce income by 100 percent of net capital losses but not to exceed $3,000 per year.

A corporation's records show the following: 2009 2010 2011 2012 2013 Net operating gain (loss) \ 6,000 \ 16,000 \ 42,000 \ 27,000 (\ 65,000) Assume the corporation has never had dividend income and its only NOL occurred in 2012.Using the NOL carryback provisions of the Code, on what portion of income in 2012 will tax not be refunded?

Charitable contributions made by a proprietorship, partnership, or S corporation are not deductible business expenses.

A corporation's records show the following: 2009 2010 2011 2012 2013 Net operating gain (loss) \ 6,000 \ 16,000 \ 32,000 \ 27,000 (\ 65,000) The corporate marginal tax rates in 2014 (or later years, if applicable) are expected to exceed those in the past.If the corporation wishes to maximize its tax savings with the current year's $65,000 NOL, on what portion of income in 2012 will tax not be refunded?

A disadvantage of the partnership form is that general partners have unlimited liability for partnership debts.

Dividend income earned by a proprietorship, partnership, S corporation, or C corporation is reported by the owners on their personal tax returns as dividend income.

The business is a partnership and T is a 50 percent owner.T is single and has no other tax information. Income from services $\quad$$\$ 100,000$ Net capital loss $\quad$ 2,200 Guaranteed compensation paid to $\mathrm { T } \quad 10,000$ Life insurance premium for $\mathrm { T }$ , payable to T's children $\quad$ 300 Other operating expenses $\quad 54,000$ Ignoring self-employment taxes, T's A.G.I, is

The business is a C corporation and T is a 50 percent owner.T is single and has no other tax information. Income from services $\quad$$\$ 100,000$ Net capital loss $\quad$ 2,200 Guaranteed compensation paid to $\mathrm { T } \quad 10,000$ Life insurance premium for $\mathrm { T }$ , payable to T's children $\quad$ 300 Other operating expenses $\quad 54,000$ The C corporation's taxable income is

Reasonable compensation paid to owners (other than sole proprietors) is deductible by the business.

A disadvantage of the C corporation is that the full amount of dividends received by it are subject to triple taxation.For example, a $4,000 dividend received is taxed first to the paying corporation when the income was earned, second to the receiving corporation, and third to the shareholders of the receiving corporation when distributed to them.

Reasonable compensation paid to owners (other than proprietors) qualifies as self-employment income.

T purchased a 60 percent interest in partnership Z for $100,000 on January 2 of the current year.During the year, the partnership had ordinary income of $50,000, tax-exempt income of $30,000, and made a cash distribution to owners of $6,000.T's basis in his partnership interest at the end of the year is

An accrual basis partnership may deduct interest owed on a note as of the end of its taxable year, even though it is not paid until May of the next year.The note is held by a cash basis taxpayer who owns 60 percent of the business.