Ch. 16 Business Entity Selection and Taxation Flashcards
Articles of Incorporation
The charter document FOR A CORPORATION that must be filed with the Secretary of State in the organization’s state of domicile
Articles of Organization
The charter document FOR A LLC that must be filed with the Secretary of State in the organization’s state of domicile
Family Limited Partnership
A special type of limited partnership created with the purpose of transferring assets to younger generations using the annual gift exclusion and valuation discounts for minority interest and lack of marketability.
General Partnership
A joint business venture among two of more persons/entities to conduct business as co-owners in which all owners have unlimited liability with regard to the debts and obligations of the partnership.
Keogh Plan
A qualified plan for a self-employed person.
Limited Liability Partnership
A hybrid entity generally comprised of licensed professionals that provides partial liability protection to its members and may be taxed as either a corporation or partnership
Limited Partnerships
Associations of two or more people in a business for profit however, one or more of the partners have limited participation in the management and therefore maintain limited risk exposure.
Managing Partner
A partner named to have responsibilities for specific tasks or for day-to-day operations.
S Corporation
A corporation under state law that elects to be taxed as a pass through entity.
Sole Proprietorship
A business owners and operated by a single person
Which form of business type is the least complex (in terms of management and governance)?
Sole Proprietorships:
Administrative requirements and formalities dictated under state law are the least burdensome.
Which form of business types (2) do not require an initial filing registration with the state?
Sole Proprietorships & General Partnerships
Which form of business type is the easiest for transferring ownership interest?
Sole Proprietorship
In which form of business type is Limited Liability not available?
- Sole Proprietorships
- General Partnerships
- The General Partner of a Limited Partnership.
Which form of business type has the advantage of being able to accumulate profits at the corporate level without the owners having to pay income taxes on those profits until distributed as dividends?
C Corporation
Which form of business type compensates owners as W-2 income and dividend income?
C Corporation
Which form of business types has a maximum limit of 100 owners?
S Corporation
In which forms of business (2) are owners known as Shareholders?
S Corporation
C Corporation
In which form of business is tax paid as an entity?
C Corporation
In which forms of business types (6) are taxes passed through to owner’s individual tax return?
- General Partnerships
- Limited Partnerships
- Limited Liability Partnerships
- Family Liability Partnership
- Limited Liability Corporations
- S Corporations
Which forms of business type (2) may file as either a corporation or a partnership?
Limited Liability Partnership (LLP)
&
Limited Liability Company (LLC)
What is the W-2 Wage Limitation to the QBI deduction?
For pass through entities (other than Sole Proprietorships), the QBI deduction cannot exceed the greater of :
1. 50% of the W-2 Wages
or
2. the sum of 25% of W-2 wages plus 2.5% of the unadjusted basis immediately after acquisition of all “qualified property.”
Qualified Property
tangible, depreciable property (including real estate) owned by a qualified business or trade by the close of the tax year and which is used for the purpose of business in the production of income.
UBIA
Unadjusted basis, immediately after acquisition of all “qualified property.”
What is the calculation for The Self-Employed Contribution RATE
(think Keogh Plan)
The Self-Employed Contribution Rate =
Contribution Rate to other Participants / (1+ Contribution Rate to other Participants)
What is the calculation for the Self-Employment Tax?
(think Keogh Plan)
The Self-Employment Tax= Net Self-Employment Income * 92.35% = Net Earnings Subject to Self Employment Tax. * 15.3% up to $147,000 + 2.9% over $147,000
What is the calculation for the Self-Employed Individual’s Qualified Plan CONTRIBUTION AMOUNT?
(think Keogh Plan)
Net Self-Employment Income - 1/2 of Self-Employment Income = Adjusted Net Self-Employment Income * Self-Employed Contribution Rate = Self-Employed Individual’s Qualified Plan Contribution
What is Adjusted Net-Self Employment Income also known as?
Earned Income
QBI Threshold & Phase-Out Amounts
Single - $170,050 - $220,050
MFJ - $340,100 - $440,100
Taxpayer’s Marginal Tax Rate after QBI
Pre-QBI Tax Rate * 80%
example: 35% * 80% = 28% Marginal Tax Rate
How many classes of stock does a S-Corporation have?
Only One
How many classes of stock does a C-Corporation have?
Up to 50
What kind of stock holders are allowed in S-Corporation?
Only individuals. Corporations, partners, trust and illegal aliens not allowed to be stock holders of an S-Corp.
Which business entity type has the ability (advantage) to make distributions to members which does not directly correlate to their proportionate share of interest in the business?
LLC
Example: business is owned 50%/50%, but the owners are compensated 60%/40%.
Which business entity type is allowed to retain earning and reinvest those earnings?
C-Corporations ONLY
What are Specified Service Trade or Businesses (SSTBs) also known as?
“out of favor” service businesses
Which business entity type cannot have preferred returns for certain investors?
S-Corporations
Which business entity types (2) cannot consider loans from third parties to be apart of basis?
S-Corporations
&
C-Corporations
How is excess income over compensation treated in a S-Corp?
The excess income distributed is treated as dividend income in S-Corp.
How is excess income over compensation treated in a LLC?
The excess income distributed is treated as Self-Employment income in LLC.
which partnerships require registration with the state?
limited partnerships (NOT general parnerships)
Which business entity types (2) may file as either a partnership or corporation?
LLC and LLP
Partnerships are considered what type of Business Entity Type?
General Partnerships
What is the Net Income Tax Rate calulcation?
Tax Rate (1-20%)
SSTB and W2 Wage limitation for QBI deduction
The limitations apply once…
Single Taxable Income is 170,050 or more
MFJ Taxable Income is 340,100 or more.
