Exam 14: Choice of Business Entity-Operations and Distributions

A family entity combines the tax-planning aspects of the progressive tax rate structure with the use of the owner's family to minimize the overall tax liability of the entire family.

Dorothy operates a pet store as a sole proprietorship. During the year, she sells the business to Florian for $200,000. The assets sold and the allocation of the purchase price are as follows: Dorothy acquired the building in 1997 for $100,000 of which $20,000 was allocated to the land. She paid $40,000 for the equipment in the same year. What are the tax consequences of the liquidation for Dorothy?

If a sole proprietorship has a net operating loss for the current period, the loss can only be used to offset other business income in the current year. Any current loss can be carried back three years and forward five years and used to offset business income in those years.

Peter owns 30% of Bear Company, an electing S corporation. Peter's adjusted basis in the stock is $44,000 at the beginning of the current year. During the current year, Bear distributes a $60,000 dividend. Bear Company reports a $200,000 operating loss for the current year. If Peter is a material participant in Bear Company, how much of the loss can he deduct on his income tax return?

A corporation's excess charitable contributions over the amount deductible

A corporation may reduce trade or business income by a charitable contributions made by the corporation, but the deduction is limited to 10% of taxable income, as adjusted.

William, a CPA, owns a 75% interest in Burglar Concrete Company (BCC). BCC is organized as a partnership. During the current year, William prepares BCC's tax return and receives his normal $300 fee for the preparation of the return. I.BCC cannot deduct the $300 fee because of the related party rules. II.William must recognize the $300 fee as income. ​

Henritta is the sole shareholder of Quaker Corporation. Quaker's income from operations for the current year is $600,000. Included in the $600,000 amount are dividends of $10,000 from the stock of a 4%-owned corporation. Also included in the $600,000 is a $4,000 long-term loss realized on the sale of a stock investment in an unaffiliated corporation. To compute taxable income for the current year, Henritta should deduct a capital loss of

Sandi and Jodie are partners who operate Household Humanities. Sandi owns 60% and Jodie owns 40% of Household. During the current year, Household has the following results: ? Revenues \ 165,000 Operating expenses 45,000 Sandi's salary 50,000 Jodie's salary 45,000 Municipal bond interest income 3,000 Long-term capital loss 30,000 Charitable contributions 10,000 a.How must Household report these results to Sandi and Jodie? Show calculations. b.Sandi is a head of household with two dependent children (ages 17 and 18). She has $29,000 of other income, which includes a $6,000 short-term capital gain. Sandi has $13,000 of other allowable itemized deductions. Calculate Sandi's taxable income and income tax liability for 2018.??

Toliver Corporation incurs a long-term capital loss of $38,000 and a short-term capital gain of $33,000. Also, Toliver has operating income of $175,000. What is Toliver's taxable income?

Match the term with the entity to which it applies. -Owner basis adjusted for liabilities

Although nontaxable income and nondeductible expenditures are not included in the computation of taxable income, they do affect the shareholder's basis in their S corporation stock.

Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.

Luisa, Lois, and Lucy operate a boutique named Mariabelle's Dreams. Based on advice from Luisa's sister, an accountant, the three form a partnership. Luisa owns 40% and Lois and Lucy each own 30%. For the year, Mariabelle's Dreams reports the following: ? Sales revenues \ 300,000 Short-term capital gains 3,000 Short-term capital losses (7,000) Trade and business expenses (160,000) Investment expenses (1,000) Taxable income \ 135,000 What amount will Mariabelle's Dreams report to Luisa as her ordinary income from the partnership?

Howard is a partner in the Smithton Partnership with a basis of $20,000. During the current year, the partnership is liquidated and the partnership distributes cash of $22,000 and property with a basis of $8,000 and a fair market value of $15,000 to each partner. What amount must Howard report as a gain from the liquidation?

Mariana is a partner in the Benson Partnership. At the close of the current year, Mariana's basis in the partnership is $23,000. At that time, the partnership distributes cash of $6,000 and property with a basis of $4,000 and a fair market value of $7,000 to each partner. What amount must Mariana report as income from the distribution in the current year?

Pluto Corporation contributes $30,000 to qualified charitable organizations during 2018. Pluto's 2018 taxable income before any charitable contribution deduction is $280,000. Included in that amount is a $10,000 dividend-received deduction amount. Pluto also has a carryover charitable contribution of $2,000 from 2017. What is the maximum amount Pluto Corporation can deduct as a charitable contribution for 2018?

Sales of property between a partner who owns more than 50% of a partnership's interest and the partnership are subject to the related party rules.

Rayburn owns all the shares of Newcastle Corporation that operates as an S corporation. Rayburn's basis in the stock is $15,000. During the year he receives a cash distribution of $22,000 from Newcastle. What must Rayburn and Newcastle report as income from the cash distribution? Rayburn Newcastle A) \- 0- \- 0- B) \ 7,000 \- 0- C) \- 0- \ 7,000 D) \ 7,000 \ 7,000

During the current year, Timepiece Corporation has operating income of $460,000 and dividend income of $70,000 from 45% owned domestic corporations. Total operating expenses for the year are $470,000. What is Timepiece's dividends-received deduction for the current year?