Stephany Fox
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Chapter 12 quesions

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Stephany Fox
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Tax Chapter 12

Question 1 of 15

1

Which of the following businesses would be better of in the case of a loss in the first year of operation?

Select one of the following:

  • Sue's Donut Shop, which is a partnership and a flow-through entity

  • Bill's Cake Emporium, which is a corporation

Explanation

Question 2 of 15

1

The main reason that tax savings are greater for flow-through entities with losses in the first year than for corporations with losses in the first year is related to the time value of money.

Select one of the following:

  • True
  • False

Explanation

Question 3 of 15

1

Which of the following people would be allowed to have income allocated to them?

Select one or more of the following:

  • Mary and her brother Arthur are partners in a car repair business. Arthur was a mechanic's apprentice for 5 years and Mary has always been a professional violinist.

  • George and Harry are cousins. They own and operate a barber shop as a partnership. Both studied went to technical college to learn to do hair.

Explanation

Question 4 of 15

1

In the event that a federal gift tax is leveraged on a transfer of equity in a business between family members, who must pay the tax?

Select one of the following:

  • Donor

  • Donee

Explanation

Question 5 of 15

1

Buy-sell agreements carry little power among family members.

Select one of the following:

  • True
  • False

Explanation

Question 6 of 15

1

Subchapter K governs S corporations.

Select one of the following:

  • True
  • False

Explanation

Question 7 of 15

1

Sandra wants to open a pet store with her daughter Linda. Sandra knows she does not want to create an S-corp, but she does not want to have bear the full liability of a partnership. What are some viable options for her?

Select one or more of the following:

  • LLP

  • C-Corp

  • LLC

  • Sole proprietorship

  • Add another member

Explanation

Question 8 of 15

1

What is the main reason why dividends are the least-preferred method of drawing money from a business?

Select one of the following:

  • There are large fees associated with distributing dividends.

  • Distribution of dividends can negatively affect the business' credit rating.

  • Dividends come from after-tax income, while other methods of drawing money usually come from before-tax income.

Explanation

Question 9 of 15

1

A constructive dividend is an unreasonably high distribution to a shareholder that the IRS taxes at a different rate.

Select one of the following:

  • True
  • False

Explanation

Question 10 of 15

1

Thin capitalization occurs when a company has extremely high amounts of equity from a single partner or shareholder.

Select one of the following:

  • True
  • False

Explanation

Question 11 of 15

1

What is an accumulated earnings tax?

Select one of the following:

  • An additional tax on any corporation formed for the purpose of avoiding income tax by accumulating earnings and profits instead of dividing and distributing them

  • A special tax on an entity formed with the main goal of earning nonbusiness income like dividends, interest, rents, and royalties

Explanation

Question 12 of 15

1

Where does most income come from in a personal holding company?

Select one of the following:

  • Revenue from sales to customers

  • Revenues from performance of personal services

  • Gains or income from investments

Explanation

Question 13 of 15

1

How much is the de minimus accumulation that will result in an accumulated earnings tax?

Select one of the following:

  • $250,000 average earnings per year

  • $250,000 total at a given time

Explanation

Question 14 of 15

1

One of the top ways to pull money from an S-corp without paying actual dividends is through salaries. Which of the following are other ways?

Select one or more of the following:

  • Allow the business to use a building owned by an owner so they can collect rent payments

  • Form a flow through entity with the sole purpose of collecting interest payments

  • Allow an owner to loan money to the business so they can collect interest payments

Explanation

Question 15 of 15

1

If you want to form a business with recently formulated regulations, no self-employment tax, and little liability as an individual owner, you should form an S-corp

Select one of the following:

  • True
  • False

Explanation

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