Exam 4: Entities Overview

For tax purposes, only unincorporated entities can be considered to be disregarded entities. If an entity is incorporated it is a corporate entity for tax purposes and cannot be a disregarded entity.

On which form is income from a single member LLC with one corporate (C corporation) owner reported?

Becca would like to organize BMI as either an LLC or as a C corporation generating a 4 percent annual before-tax rate of return on a $450,000 investment. Individual ordinary rates are 28 percent, corporate rates are 15 percent, and individual capital gains and dividends tax rates are 15 percent. BMI will distribute its earnings annually to either its members or shareholders. a. Ignoring self-employment taxes, how much would Becca keep after taxes if BMI is organized as either a LLC or as a C corporation? b. Ignoring self-employment taxes, what are the overall (combined owner and entity level) tax rates if BMI is organized as either an LLC or as a C corporation?

Which of the following is not an effective strategy for mitigating double taxation in a C corporation?

C corporations and S corporations are separate taxpaying entities that pay tax on their own income. S corporations are flow-through entities whose income "flows through" to their owners who are responsible for paying tax on the income.

Jaron would like to organize TMZ as either an LLC or as a C corporation generating a 6 percent annual before-tax rate of return on a $200,000 investment. Individual and corporate tax rates are both 40 percent and individual capital gains and dividends tax rates are 10 percent. TMZ will distribute its earnings annually to either its members or shareholders. a. Ignoring self-employment taxes (and the additional Medicare Tax), how much would Jaron keep after taxes if TMZ is organized as either an LLC or a C corporation? b. Ignoring self-employment taxes (and the additional Medicare Tax), what are the overall tax rates (combined overall and entity level) if TMZ is organized as either an LLC or as a C corporation?

A single-member LLC is taxed as a partnership. Single-member LLCs are taxed as sole proprietorships.

If PST Corporation is a shareholder of MNO Corporation, how many levels of tax is MNO's pre-tax income potentially exposed to?

Roberto and Reagan are both 25 percent owner/managers for Bright Light Enterprises. Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in San Francisco, CA. Bright Light generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000) loss from the San Francisco store, and a combined $75,000 profit from the remaining stores. If Bright Light is taxed as a partnership and decides that Roberto and Reagan will be allocated 70 percent of his own store's profit with the remaining profits allocated pro rata among all the owners, how much income will be allocated to Reagan?

Shareholders of C corporations receiving property distributions must recognize dividend income equal to the fair market value of the distributed property if the distributing corporation has sufficient earnings and profits.

General partnerships are legally formed by filing a partnership agreement with the state in which the partnership will be formed. General partnerships may be formed by written agreement among the partners, called a partnership agreement, or may be formed informally without a written agreement when two or more owners join together in an activity to generate profits.

Which legal entity is generally best suited for going public?

What document must LLCs file with the state to organize their business?

Sole proprietors are subject to self-employment taxes on net income from their sole proprietorships.

Corporations are legally formed by filing articles of organization with the state in which the corporation will be created. Corporations file articles of incorporation.

Unincorporated entities with only one individual owner are taxed as sole proprietorships.

Which of the following entity characteristics are generally key drivers for small business owners in deciding which entity to choose?

In its first year of existence, BYC Corporation (a C corporation) reported a loss for tax purposes of ($40,000). How much tax will BYC pay in year 2 if it reports taxable income from operations of $35,000 in year 2 before any loss carryovers?

Rodger owns 100% of the shares in Trevor Inc., a C corporation. Assume the following for the current year: Trevor Inc.'s pre-tax income =\ 16,000 Trevor Corp's marginal tax rate =35\% Percentage of after-tax earnings retained by Trevor Corp =0\% (i.e. all after-tax earnings distributed) Rodger's dividend tax rate =5\% Given these assumptions, how much cash does Rodger have from the dividend after all taxes have been paid?

If an individual forms a sole proprietorship, which nontax factor will be of greatest benefit to the sole proprietor?