Ch19 – Characteristics Of Business Entities Flashcards
(35 cards)
How does the tax treatment of an S-corporation parallel the tax treatment of partners and partnerships?
They are pass-thru entities and all income is distributed equally to the shareholders.
Service partners often receive fixed payments like salaries called guaranteed payments. But, the partners are not treated as…
statutory employees for federal tax purposes.
What are the THREE requirements to form an S-corporation?
Must be a domestic corporation and no nonresident aliens (the US only!)
Must have no ineligible shareholders
Must have no more than 100 equal shareholders
The thresholds for the additional Medicare contribution tax burdens are imposed on lesser of the taxpayer’s ________ or ________.
net investment income (NII)
OR
modified adjusted gross income (MAGI)
over $200K for individuals and $250K for married filing jointly.
What is a major problem associated with the lack of continuation of a closely held business?
That the business assets will often face diminished value when the business terminates.
Additional tax burdens were enacted to help fund the Affordable Care Act of 2010. How much additional Medicare tax was imposed on higher wage earners and how much is imposed on net investment income (NII)?
Medicare Contribution Tax = 0.9%
net investment income (NII) = 3.8%
Partners forming a partnership receive cost basis in their partnership interests equal to ______ and the ______ contributed by that partner.
the amount of cash and the adjusted cost basis (due to depreciation) of any property contributed by that partner.
What type of business entities have “continuity of operations”?
ALL corporations (including S-Corps) have continuity of life beyond the life of the owners.
Which business entities are taxed directly to the business owners and are considered pass-through entities?
proprietorships
partnerships
s-corps
LLCs
A general partnership and sole proprietorship are automaticallyterminated by operation of law at…
the death or disability of one of the partners.
Pass-through business entities may deduct up to ___% of Qualified Business Income (QBI) based on income and many other things.
20%
There are many reasons for a business to terminate, the most obvious of which is financial failure. What are the common business continuity concerns?
The death, disability, or retirement of an owner or key employee.
What are the TWO requirements when forming an unincorporated business (e.g. - proprietorships and partnerships)?
ALL entities require appropriate licenses/certificates and name registration with the state.
A ______ MUST have at least one general partner and a ______ require NO general partner(s), but are heavily restricted.
(a) Limited Partnership (LP)
(b) Limited Liability Partnership (LLP)
The formation of a corporation is MORE expensive, time consuming, and complex than other business entities. What are the TWO requirements to begin operations as a corporation?
a) filed with the state
b) by-laws are the internal governing document
Which partners retain personal responsibility for business operations and which partners are at risk only to the extent of their investment in the business?
The general partners all retain responsibility and limited partners risk their investment.
Issuing new shares of a corporation can dilute ownership and control. What are some defenses against shares being diluted?
Having multi-share classes of stock can be issued without diluting control, such as preferred stock and non-voting common stock.
Qualified Business Income (QBI) deductions are based on _______, _______, and _______.
business type (qualified trade vs specified service)
ownership interest
phase-out ranges
The amount of income a partner is entitled to withdraw under a partnership agreement, even if actually withdrawn.
distributive share
Explain deductions allowed only for “reasonable compensation”.
Many corporations pay shareholder-employees through tax deductible reasonable compensation rather than through dividends (eg - net investment income (NII)).
Members of an LLC choose ________ and use operating losses of the LLC to offset personal income.
partnership taxation
What ever happen to the congress enacted the corporate alternative minimum tax *(AMT)*?
It was permanently repealed by the TCJA
What are the TWO ways owners compensated?
labor (compensation for services)
capital (compensation for ownership)
What are the tax advantages for fringe benefits, such as group term life or health insurance?
These types of benefits are deductible from corporate income while providing no taxable to the shareholder-employee.
