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Exam 15: Entities Overview

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Question 41

Multiple Choice

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What tax year-end must an unincorporated entity with only one owner adopt?

A) The entity is free to adopt any tax year-end.
B) The entity must adopt the same year-end as its owner.
C) The entity must adopt a calendar year-end.
D) The entity may adopt any year-end except for a calendar year-end.

E) All of the above
F) A) and B)

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Question 42

Multiple Choice

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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) A) and D)
F) B) and D)

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Question 43

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Assume you plan to start a new enterprise; you know the probability of having losses for the first three years of operations is almost 90 percent, and you know you will report a substantial amount of income from other sources during those same three years. From a tax perspective, which of the following entity choices would not allow you to offset the entity losses against your income from other sources?

Owners of which of the following entity types receive deductible compensation from the entity for working for the entity?

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

If a C corporation incurred a net operating loss in 2017, it could carry the loss back two years and forward 20 years to offset income in those years. However, it may offset only 80 percent of the taxable income before the NOL deduction in those years.

Which of the following statements is false for a C corporation that incurred a net operating loss for a tax year beginning before 2018?

When an employee/shareholder receives a business income allocation from an S corporation, what taxes apply to the business income allocation?

Losses from C corporations are never available to offset a shareholder's personal income.

Crocker and Company (CC) is a C corporation. For the year, CC reported taxable income of $550,000. At the end of the year, CC distributed all its after-tax earnings to Jimmy, the company's sole shareholder. Jimmy's marginal ordinary tax rate is 37 percent and his marginal tax rate on dividends is 23.8 percent, including the net investment income tax. What is the overall tax rate on Crocker and Company's pretax income?

For tax purposes, sole proprietorships pay sole proprietors guaranteed payments as compensation for their services.

Which of the following statements is true for a C corporation incurring a NOL for a tax year that begins in 2020?

A single-member LLC is taxed as a partnership.

In 2020, BYC Corporation (a C corporation)had an NOL carryover from 2017 in the amount of $40,000. How much tax will BYC pay in 2020 if it reports taxable income from operations of $35,000 in 2020 before the NOL deduction?

Both tax and nontax objectives should be considered when choosing the entity type for a new business.

Sole proprietorships that are not organized as LLCs are not treated as legal entities separate from their individual owners.

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

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

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 pretax income potentially exposed to?

What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have, respectively?