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Exam 4: Entities Overview

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Question 31

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On which tax form does a single member LLC with one individual owner report its income and losses?

A) Form 1120.
B) Form 1120S.
C) Form 1065.
D) Form 1040, Schedule C.

E) B) and C)
F) A) and B)

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Question 32

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A single-member LLC is taxed as a partnership.

A) True
B) False

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Question 33

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

Tuttle Corporation (a C corporation)projects that it will have taxable income for the year of $300,000 before incurring any interest expense.Assume Tuttle's tax rate is 35 percent. a.What is the amount of the combined corporate and shareholder level tax on the $300,000 of pre-interest expense earnings if Ruth,Tuttle's sole shareholder,lends Tuttle Corporation $100,000 at the beginning of the year,Tuttle pays Ruth $10,000 of interest on the loan (interest is considered to be reasonable),and Tuttle distributes all of its after-tax earnings to Ruth? Assume her ordinary marginal rate is 33 percent and dividend tax rate is 15 percent. b.Assume the same facts as in part a except that the IRS determines that the fair market value of the interest should be $8,000.What is the amount of the combined corporate and shareholder level tax on Tuttle Corporation's pre-interest expense earnings?

David would like to organize HOS as either an LLC or as a corporation (taxed as a C corporation)generating a 12 percent annual before-tax return on a $300,000 investment.Individual and corporate tax rates are both 30 percent and individual capital gains and dividend tax rates are 15 percent.HOS will pay out its after-tax earnings every year to either its members or its shareholders. a.Ignoring self-employment taxes,how much would David keep after taxes if HOS is organized as either an LLC or a corporation (taxed as a C corporation)? b.Ignoring self-employment taxes,what are the overall tax rates (combined owner and entity level)if HOS is organized as either an LLC or a corporation (taxed as a C corporation)?

Which legal entity provides the least flexible legal arrangement for owners?

For the current year,Birch Corporation,a C corporation,reports taxable income of $400,000 before paying salary to its sole shareholder Elaine.Elaine's marginal tax rate on ordinary income is 33 percent and 15 percent on dividend income.If Birch pays Elaine a salary of $200,000 but the IRS determines that Elaine's salary in excess of $100,000 is unreasonable compensation,what is the overall income tax rate on Birch's $400,000 pre-salary income? Assume Birch's tax rate is 35 percent and it always distributes all after-tax earnings to Elaine.

In its first year of existence Aspen Corp.(a C corporation)reported a loss for tax purposes of $50,000.In year 2,it reports a $30,000 loss.For year 3,it reports taxable income from operations of $120,000.How much tax will Aspen Corp.pay for year 3? Consult the corporate tax rate table provided to calculate your answer.(Use Corporate Tax Rate Schedule.)

Rodger owns 100% of the shares in Trevor Inc.,a C corporation.Assume the following for the current year: 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?

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

What is the tax impact to a C corporation or an S corporation when it makes a property distribution to a shareholder?

Generally,which of the following flow-through entities can elect to be treated as a C corporation?

Which of the following legal entities are generally classified as C corporations for tax purposes?

If individual taxpayers are the shareholders of PST Corporation and PST corporation is a shareholder of MNO Corporation,how many levels of tax is MNO's pre-tax income potentially exposed to?

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

While a C corporation's losses cannot be used by their shareholders to offset personal income,a C corporation may carry back and carry forward losses to help offset the taxable income a corporation had or will have.How are these net operating losses carried back and carried forward?

Taylor would like to organize DRK as either an LLC or as a corporation (taxed as a C corporation)generating a 13 percent annual before-tax rate of return on a $250,000 investment.Individual and corporate tax rates are both 30 percent and individual capital gains and dividends tax rates are 5 percent.DRK will distribute its earnings annually to either its members or shareholders. a.Ignoring self-employment taxes,how much would Taylor keep after taxes if DRK is organized as either an LLC or as a corporation (taxed as a C corporation)? b.Ignoring self-employment taxes,what are the overall (combined owner and entity level)tax rates if DRK is organized as either an LLC or as a corporation (taxed as a C corporation)?

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?

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.