ITX - 35A

Question 1

Business Form: Owners’ Liability - Unlimited personal liability

Answer 1

Sole Proprietor

Partnership

Question 2

Business Form: Owners’ Liability - Unlimited personal liability, including liability for the acts of partners

Answer 2

Partnership

Question 3

Business Form: Owners’ Liability - Limited personal liability

Answer 3

Business Form:
S Corporation
Limited Liability Company
C Corporation

Question 4

Business Form: Organization Costs - None needed except for possible local licensing

Answer 4

Sole Proprietor

Question 5

Business Form: Organization Costs - No formal agreement is required unless it is a limited ___. A written agreement is recommended

Answer 5

Business Form: Partnership

Partnership

Question 6

Business Form: Organization Costs - Organized like a regular corporation and filed with the state. Election must be signed by all shareholders and filed with the IRS.

Answer 6

S Corporation

Question 7

Business Form: Organization Costs - Articles of Organization must be filed with the state. Governed by state law.

Answer 7

LLC

Question 8

Business Form: Organization Costs - Articles of Incorporation must be filed with the state, which will require a payment of fees. Legal assistance may be required.

Answer 8

C Corporation

Question 9

Business Form: Management - Sole owner makes the decisions

Answer 9

Sole Proprietorship

Question 10

Business Form: Management - Decisions are made according to the ___ agreement - in the absence of one, partners vote according to their share of profits.

Answer 10

Business Form: Partnership

- Partnership

Question 11

Business Form: Management - Shareholders elect the board of directors, who, in turn, appoint management to make day-to-day decisions. Shareholders should ratify major decisions.

Answer 11

Business Form:
S Corporation
C Corporation

Question 12

Business Form: Management - The owners, called members, choose managers according to the organizational agreement.

Answer 12

LLC

Question 13

Business Form: Taxation of Owners - All net income from the ___ is subject to income tax and self-employment tax, whether or not received by the owner.

Answer 13

Business Form: Sole Proprietorship

- Sole Proprietorship

Question 14

Business Form: Taxation of Owners - All net income of the ___ is allocated to the partners, according to the ___ agreement. It is self-employment income for ___ partners, but not for ___ partners.

Answer 14

Business Form: Partnership

• Partnership
• Partnership
• General
• Limited

Question 15

Business Form: Taxation of Owners - Owners can be employees of the corporation and receive salary that is taxable to the ___ and deductible to the ___. Net income is allocated to the shareholders according to their ___ and is not subject to ___ tax.

Answer 15

Business Form: S Corporation

• Recipient
• Corporation
• stock ownership
• self-employment

Question 16

Business Form: Taxation of Owners - Members are taxed the same way as partners, if that option is chosen.

Answer 16

LLC

Question 17

Business Form: Taxation of Owners - Owners can be employees and receive taxable income as salary, which is ___ by the corporation. Net income from the corporation is taxed at the ___ level. Shareholders are taxed ___ on dividends received.

Answer 17

Business Form: C Corporation

• Deductible
• Corporate
• Separately

Question 18

Business Form: Losses - May offset losses against income from other sources, up to the amount at risk

Answer 18

Sole Proprietor

Question 19

Business Form: Losses - A ___ partner who actively participates in the business may deduct losses up to his or her basis against other income. For ___ partners, losses are passive.

Answer 19

Business Form: Partnership

• General
• Limited

Question 20

Business Form: Losses - An active shareholder is treated like a ___ partner and may deduct his or her share of losses against other income.

Answer 20

Business Form: S Corporation

- General

Question 21

Business Form: Losses - An active member is treated like a ___ partner.

Answer 21

Business Form: LLC

- General

Question 22

Business Form: Losses - Losses may be carried back 2 years and forward 20 years to offset other income, but have no effect on shareholders.

Answer 22

C Corporation

Question 23

Business Form: Basis/Amount at Risk - All assets personally committed to the business make up basis.

Answer 23

Sole Proprietor

Question 24

Business Form: Basis/Amount at Risk - A ___ partner has a basis in his or her ___ share equal to the amount paid, plus/minus his or her share of the income (or loss) from the ___, less any withdrawals, plus his or her share of ___ liabilities.

Answer 24

Business Form: Partnership

• General
• Partnership
• Partnership
• Partnership

Question 25

Business Form: Basis/Amount at Risk - A shareholder's basis is the amount paid plus/minus his or her share of income/loss from the corporation, less withdrawals. ___ loans to the corporation are added to basis, but not loans taken by the ___.

Answer 25

Business Form: S Corporation - Shareholder - S Corporation

Question 26

Business Form: Basis/Amount at Risk - An active member is treated like a ___ partner, and a passive member is treated like a ___ partner. Active members' basis increases for loans to the ___ by the members, as well as for loans taken by the ___.

Answer 26

Business Form: LLC - General - Limited - LLC - LLC

Question 27

Business Form: Basis/Amount at Risk - A shareholder's basis is the purchase price. Return of capital reduces basis. Reinvesting dividends increases basis. Basis is allocated to additional shares in a stock split or stock dividend.

Answer 27

C Corporation

Question 28

Business Form: Retirement Plans - Most plans are available. Contribution limits are calculated on net self-employment income and are deductible on page 1 of Form 1040, not as a business expense.

Answer 28

Business Form: Sole Proprietor Partnership LLC

Question 29

Business Form: Retirement Plans - Includes guaranteed payments

Answer 29

Partnerships

Question 30

Business Form: Retirement Plans - Most plans are available. Owners must be employees to participate, and contributions for owners are calculated as for other employees.

Answer 30

Business Form: S Corporation C Corporation

Question 31

Business Form: Employee/Owner Benefits - Health insurance premiums are 100% deductible. Life insurance premiums on the owner are income to the owner.

Answer 31

Business Form: Sole Proprietor Partnership LLC

Question 32

Business Form: Employee/Owner Benefits - Employee benefits are nontaxable only for the employees who own less than 2% of stock.

Answer 32

S Corporation

Question 33

Business Form: Employee/Owner Benefits - Owner/employees can be provided with health, disability, and group term life (up to $50,000) with no taxable income to the owner/employee.

Answer 33

C Corporation

Question 34

Business Form: Restriction on Owners - None

Answer 34

``` Business Form: Sole Proprietor Partnership LLC C Corporation ```

Question 35

Business Form: Restriction on Owners - Up to 100 shareholders that are domestic individuals, estates, or certain trusts.

Answer 35

S Corporation

Question 36

Business Form: Transfer of Ownership - Sale of assets only

Answer 36

Sole Proprietor

Question 37

Business Form: Transfer of Ownership - ___ agreement should govern how transfer takes place and who must approve it. The seller reports a gain on the difference between the sale price and basis, with special allocation to ___.

Answer 37

Business Form: Partnership - Partnership - Inventory and receivables

Question 38

Business Form: Transfer of Ownership - Ownership can be transferred by a simple sale of stock. Bylaws may restrict sales to ensure compliance.

Answer 38

Business Form: S Corporation C Corporation

Question 39

Business Form: Transfer of Ownership - The operating agreement should do the same as a partnership agreement.

Answer 39

LLC

Question 40

Business Form: Risk Protection - None. The owner is liable for all losses; the owner should avoid risky activity and/or should insure.

Answer 40

Business Form: Sole Proprietor Partnership

Question 41

Business Form: Risk Protection - Owners have limited liability, so they can engage in risky activity

Answer 41

Business Form: S Corporation LLC C Corporation

Question 42

Basis/Amount at Risk: Partnership - A general partner has a basis in his or her partnership share equal to the amount ___, plus/minus his or her share of the ___ from the partnership, less any ___, plus his or her share of ___.

Answer 42

- paid - income (or loss) - withdrawals - partnership liabilities

Question 43

Basis/Amount at Risk: S Corporation - A shareholder's basis is the amount ___ plus/minus his or her share of ___ from the corporation, less ___. Shareholder loans to the corporation are ___ to basis, but not loans taken by the S corporation.

Answer 43

- paid - income/loss - withdrawals - added

Question 44

Basis/Amount at Risk: LLC - Active members' basis ___ for loans to the LLC by the members, as well as loans taken by the LLC.

Answer 44

increases

Question 45

Basis/Amount at Risk: C Corporation - A shareholder's basis is the ___. Return of capital ___ basis. Reinvesting dividends ___ basis. Basis is allocated to additional shares in a ___.

Answer 45

- purchase price - reduces - increases - stock split or stock dividend