Chapter 17-22 Problems Flashcards
For partnerships how do you treat salaries given to owners regarding taxes?
You wouldn’t do anything with the salaries. You split the net income of the company between the owners based on their percentage of ownership and tax it at the ownership level. You don’t need to do anything with salaries. It’s not included.
How do you treat salaries with a corporation regarding taxes?
At the corporate level you do not tax salaries. You subtract salaries from the NI. The salaries are taxed at the individual level.
How is NI of corporation treated regarding taxes
After subtracting out salaries it is taxed at the corporate level. The income is not taxed on the individual level.
How are salaries treated in an S corporation
They are taxed only at the individual level.
How is NI of S corporation treated regarding taxes?
First you subtract the salaries paid out from the NI and then distribute it among owners depending on how much they own.
How is a dividend treated regarding taxes in a corporation
The dividend is taxed at the individual level. It has no effect on Corporate level. It’s not deductible for the corporation.
How would the dividend affect tax if it was an S corporation?
There would be no effect
How are withdrawals accounted for in a partnership regarding tax
They are not taxed unless its a guaranteed payment.
What would be a reason to make withdrawals guaranteed payment in a partnership?
If somebody has 70% ownership and withdraws 30,000 and someone else owns 30% and withdraws 70,000 tax payments wouldn’t be fair. The 70% owner would pay 70% of income taxes and the 30% would pay only 30% even though he’s withdrawing more. If we turned the 70,000 withdrawal into a guaranteed payment the 30% person would pay tax on it and it would also lower NI so the 70% person wouldn’t have to pay as much.
What would be another way to fix the problem.
Turn the partnership into an S corp and give the 30% guy a salary of 70,000. This would also lower NI
How are fringe benefits treated in a partnership?
Treated same as a guaranteed payment.
How is a guaranteed payment as a salary treated in a partnership?
If it wasn’t guaranteed then salary wouldn’t change anything, but since it is guaranteed you subtract it from the NI of partnership. Then you base the income distribution on the new amount. If you have fringe benefits you would also subtract these from NI. Then you would add salary to taxable income along with the allocated income amount. YOu don’t include salary in taxable amount if it’s not guaranteed.
How is salary and fringe benefit treated in a corporation.
They are subtracted from taxable income and not taxed at the corporate level.
How are fringe benefits and salary treated in a S corporation.
salary and fringe benefits are both taxed. You subtract fringe benefits and salary from NI and use that as your base to find income allocation.
Social security and self employment taxes
See question 6
