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Exam 15: Entities Overview

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Question 31

True/False

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If a C corporation incurs a net operating loss in 2017, it may carry the loss back two years and forward 20 years to offset income in those years. However, it may offset only 80% of the taxable income before the NOL deduction in those years.

A) True
B) False

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Question 32

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What is the maximum number of unrelated shareholders a C corporation can have, the maximum number of unrelated shareholders an S corporation can have, and the maximum number of partners a partnership may have respectively?

A) 100; no limit; no limit
B) no limit; 100; 2
C) no limit; 100; no limit
D) 100; 100; no limit

E) None of the above
F) A) and B)

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Question 33

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When an employee/shareholder receives a business income allocation from an S corporation, what taxes apply to the business income allocation?

What kind of deduction is the deduction for qualified business income?

Sole proprietorships are not treated as legal entities separate from their individual owners.

General partnerships are legally formed by filing a partnership agreement with the state in which the partnership will be formed.

What document must LLCs file with the state to organize their business?

The C corporation tax rate is significantly lower than the top individual marginal tax rate.

C corporations and S corporations are separate taxpaying entities that pay tax on their own income.

The deduction for qualified business income applies to owners of C corporations but not to flow-through entity owners.

Which legal entity provides the least flexible legal arrangement for owners?

On which tax form does a single member LLC with one individual owner report its income and losses?

If you were seeking an entity with the most favorable tax treatment regarding (1) the number of owners allowed, (2) the flexibility to select your accounting period, and (3) the availability of preferential capital gains rates when selling your ownership interest, which entity should you decide to use?

Which of the following legal entities are generally classified as C corporations for tax purposes?

Roberto and Reagan are both 25 percent owner/managers for Bright Light Inc. Roberto runs the retail store in Sacramento, CA, and Reagan runs the retail store in San Francisco, CA. Bright Light Inc. generated a $125,000 profit companywide made up of a $75,000 profit from the Sacramento store, a ($25,000) loss from the San Francisco store, and a combined $75,000 profit from the remaining stores. If Bright Light Inc. is an S corporation, how much income will be allocated to Roberto?

Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

Tax rules require that entities be classified the same way for tax purposes as they are classified for legal purposes.

The excess loss limitations apply to owners of all of the following entities except which of the following?

If C corporations retain their after-tax earnings, when will their shareholders who are individuals be taxed on the retained earnings?

Unincorporated entities with only one individual owner are taxed as sole proprietorships.