Self-Employment Tax, Net Investment Income Tax or Neither
$300,000 of dividends paid from a C corporation.
Net Investment Income Tax. Only when your MAGI exceeds $200,000 if you're single or $250,000 if you're married filing jointly. If you're single and this is the only income you have, only $100,000 of the $300,000 is subject to the net investment income tax.
What document must an LLC file with a state or organize its business?
True or False? For tax purposes, sole proprietorships are not treated as separate legal entities from their individual owners.
True.
What is the only business entity that pays tax on its earnings?
C corporation - the rest are passthrough entities where income is taxed at the owner level.
A sole proprietor who earns $450,000 selling houses for a living.
Self-Employment Tax
If an individual forms a sole proprietorship, which nontax factors will be of greatest benefit to the sole proprietor?
a) Legal protection
b) Facilitation of initial public offerings
c) Minimal time and cost to organize
Minimal time and cost to organize
On which tax form do LLCs with more than one owner generally report their income and losses?
Form 1065. An LLC with more than one owner is taxed as a partnership by default.
True or False? Only C corporations can take the qualified business income deduction?
False. The QBI deduction is available only for passthrough entities.
Guaranteed payments from a Partnership.
Self-Employment Taxes
True or False? To form a general partnership you must file a certificate of partnership in the state in which you wish to operate.
False - there is no filing requirement to create a partnership. Two individuals operating a business together by default create a partnership.
True or False. In certain circumstances, C corporations shareholders can elect to change the entity to a flow-through entity for tax purposes.
True - by making an S election
Robert is seeking additional capital to expand ABC Inc. In order to qualify as an S corporation, which type of shareholder can Robert permit?
1) 2 different partnerships
2) 4 different C corporations
3) 150 related individuals
4) 110 unrelated individuals
150 individuals. Partnerships and C corporations are not permitted to own S corporations. There can only be 100 shareholders, but certain related individuals are treated as one shareholder.
Business income tax allocations from an S corporation in which an S corporation shareholder is actively involved and paid a reasonable salary.
Neither
True or False? In order to create a limited partnership, a filing must be made with the state in which the partnership is organizing.
True
If a C corporation retains its after-tax earnings, when will the shareholders who are individuals be taxed on the retained earnings?
1) When they elect to be taxed on undistributed income
2) When they sell their shares at a gain
3) Shares will be taxed on undistributed retained earnings in the year the corporation files its tax return.
When they sell their shares at a gain.
True or False? S Corporations have more restrictive ownership requirements than other entities.
True