Business Entities
Part 2 · 15 study cards · Active recall format
Q1.What is the self-employment tax rate and what is it composed of?
15.3% total — Social Security 12.4% on net earnings up to $176,100 plus Medicare 2.9% on all net earnings. Additional 0.9% Medicare surtax on earnings above $200K single / $250K MFJ.
0Q2.What is the Qualified Business Income (QBI) deduction under Section 199A?
Up to 20% of QBI from a pass-through entity plus 20% of qualified REIT dividends and PTP income. Subject to W-2 wage and UBIA limitations for higher-income taxpayers.
0Q3.How are guaranteed payments to a partner taxed?
Ordinary income to the receiving partner, deductible by the partnership, and subject to self-employment tax
0Q4.What is the flat C corporation tax rate under current law?
21%
0Q5.Name the five main types of business entities for federal tax purposes.
Sole proprietorship (Schedule C) Partnership (Form 1065, K-1) C Corporation (Form 1120) S Corporation (Form 1120-S, K-1) LLC (can elect classification)
0Q6.What is the accumulated earnings tax and credit amount?
20% penalty tax on C corporations retaining earnings beyond reasonable business needs. $250,000 accumulated earnings credit ($150,000 for professional service corporations).
0Q7.How are the default federal tax classifications of a domestic LLC determined?
one owner — disregarded entity at least two owners — partnership eligible LLC may elect corporate classification on Form 8832
Q8.What is included in a partner's initial outside basis when property is contributed to a partnership?
adjusted basis of contributed property cash contributed partner's share of partnership liabilities minus liabilities assumed by the partnership that reduce the partner's share
Q9.When does a partner generally recognize gain from a current partnership distribution?
cash distributed exceeds the partner's outside basis gain equals the excess cash gain is generally capital gain
Q10.When may a partner recognize a loss on a liquidating partnership distribution?
partner receives only money unrealized receivables inventory outside basis exceeds the basis of those assets received
Q11.What are the principal requirements for nonrecognition under IRC §351?
property transferred to a corporation solely in exchange for stock transferors control the corporation immediately after the exchange control means at least 80% under IRC §368(c)
Q12.How are net capital losses treated by a C corporation?
deductible only against capital gains three-year carryback five-year carryforward treated as short-term capital loss in carry years
Q13.In what order is a nonliquidating C-corporation distribution taxed to an individual shareholder?
dividend to the extent of current or accumulated earnings and profits return of capital reducing stock basis capital gain after stock basis reaches zero
Q14.What are the general tax consequences of a complete corporate liquidation?
shareholder treats property received as payment in exchange for stock shareholder recognizes gain or loss against stock basis corporation generally recognizes gain or loss as if distributed property were sold at fair market value
Q15.What are the principal eligibility requirements for an S corporation?
domestic corporation no more than 100 shareholders only eligible shareholders no nonresident-alien shareholders one class of stock
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