Which of the following businesses would be better of in the case of a loss in the first year of operation?
Sue's Donut Shop, which is a partnership and a flow-through entity
Bill's Cake Emporium, which is a corporation
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.
Which of the following people would be allowed to have income allocated to them?
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.
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?
Donor
Donee
Buy-sell agreements carry little power among family members.
Subchapter K governs S corporations.
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?
LLP
C-Corp
LLC
Sole proprietorship
Add another member
What is the main reason why dividends are the least-preferred method of drawing money from a business?
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.
A constructive dividend is an unreasonably high distribution to a shareholder that the IRS taxes at a different rate.
Thin capitalization occurs when a company has extremely high amounts of equity from a single partner or shareholder.
What is an accumulated earnings tax?
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
Where does most income come from in a personal holding company?
Revenue from sales to customers
Revenues from performance of personal services
Gains or income from investments
How much is the de minimus accumulation that will result in an accumulated earnings tax?
$250,000 average earnings per year
$250,000 total at a given time
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?
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
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
