4155586
Description
Quiz by Stephany Fox, updated more than 1 year ago
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Created by Stephany Fox
about 9 years ago
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Question 1
Question
Which of the following businesses would be better of in the case of a loss in the first year of operation?
Answer
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Sue's Donut Shop, which is a partnership and a flow-through entity
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Bill's Cake Emporium, which is a corporation
Question 2
Question
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.
Answer
- True
- False
Question 3
Question
Which of the following people would be allowed to have income allocated to them?
Answer
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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.
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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.
Question 4
Question
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?
Answer
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Donor
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Donee
Question 5
Question
Buy-sell agreements carry little power among family members.
Answer
- True
- False
Question 6
Question
Subchapter K governs S corporations.
Answer
- True
- False
Question 7
Question
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?
Answer
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LLP
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C-Corp
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LLC
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Sole proprietorship
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Add another member
Question 8
Question
What is the main reason why dividends are the least-preferred method of drawing money from a business?
Answer
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There are large fees associated with distributing dividends.
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Distribution of dividends can negatively affect the business' credit rating.
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Dividends come from after-tax income, while other methods of drawing money usually come from before-tax income.
Question 9
Question
A constructive dividend is an unreasonably high distribution to a shareholder that the IRS taxes at a different rate.
Answer
- True
- False
Question 10
Question
Thin capitalization occurs when a company has extremely high amounts of equity from a single partner or shareholder.
Answer
- True
- False
Question 11
Question
What is an accumulated earnings tax?
Answer
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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
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A special tax on an entity formed with the main goal of earning nonbusiness income like dividends, interest, rents, and royalties
Question 12
Question
Where does most income come from in a personal holding company?
Answer
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Revenue from sales to customers
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Revenues from performance of personal services
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Gains or income from investments
Question 13
Question
How much is the de minimus accumulation that will result in an accumulated earnings tax?
Answer
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$250,000 average earnings per year
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$250,000 total at a given time
Question 14
Question
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?
Answer
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Allow the business to use a building owned by an owner so they can collect rent payments
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Form a flow through entity with the sole purpose of collecting interest payments
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Allow an owner to loan money to the business so they can collect interest payments
Question 15
Question
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
Answer
- True
- False
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