EA Business

Question 1

Qualified Joint Venture (def)

Answer 1

An unincorporated business jointly owned by a married couple, who elect to NOT be treated as a partnership for federal tax purposes. Each spouse is treated as a sole proprietor and claims a share of the income and expenses of the business.

Question 2

A qualified joint venture conducts a trade of business where all the following exist: (4)

Answer 2

1. The only members of the joint venture are a married couple who file a joint return.
2. Both spouses materially participate in the trade of business
3. Both spouses elect not to be treated as a partnership.
4. The business is co-owned by both spouses, and not in the name of a state law entity.

Question 3

Corporation (def)

Answer 3

A person or group of people incorporated by charter from the Secretary of State

Question 4

How is a partnership taxed?

Answer 4

Partnerships do not pay income taxes. Instead, any profits or losses “pass through” to its partners.

Question 5

How is a Corporation taxed?

Answer 5

The profit is taxed to the corporation when earned AND then is taxed to the shareholders when distributed as dividends. Shareholders cannot deduct any loss of the corporation.

Question 6

How can an eligible domestic corporation avoid double taxation?

Answer 6

By electing treatment as an S Corporation

Question 7

The members of what type of entity are not personally liable for the entity’s debts?

Answer 7

LLC Limited Liability Company

Question 8

An LLC is a business structure that is allowed and governed by _________.

Answer 8

State statute

Question 9

Owners of an LLC are called __________.

Answer 9

Members

Question 10

What are a few types of businesses that generally cannot be LLCs?

Answer 10

Banks and insurance companies

Question 11

What is the big advantage of an LLC over a partnership or sole proprietorship?

Answer 11

An LLC member is typically liable only to the extent of his investment in the business. This is a big advantage over a partnership/sole prop, where at least one partner is personally liable for the debts of the company.

Question 12

Unlike an S corporation, an LLC can have ______________.

Answer 12

More than 100 members, including other businesses such as partnerships and corporations.

Question 13

Default treatment for taxation at federal level:

Answer 13

1. An LLC with 2 or more members will be classified as a partnership.
2. An LLC with only 1 member will be disregarded as an entity separate from its owner.

Question 14

How can an LLC choose to be classified as a corporation, without the additional administrative burden of actually being a corporation?

Answer 14

The check-the-box regulations under IRC section 7701, allow an LLC to choose it classification.

Question 15

If an LLC is electing an alternative treatment, when must that election be done by?

Answer 15

No more than 75 days after the beginning of the tax year the election is to take effect, or anytime in the preceding tax year.

Question 16

What form must an LLC file to elect treatment as a corporation?

Answer 16

Form 8832

Question 17

What form must an LLC file to elect treatment as an S-Corporation?

Answer 17

Form 2553

Question 18

What requirements must an LLC meet prior to making an S election?

Answer 18

1. No more than 100 members who are individuals, estates, exempt organizations or certain trusts.
2. Non-resident alien shareholders are also not allowed.

Question 19

60-month limitation rule

Answer 19

Once an eligible entity makes an election to change its classification, the entity generally cannot change (without IRS permission) its classification by election again during the 60 months after the effective date. The 60-month limitation does not apply if a newly formed eligible entity made the previous election and the election was effective on the date of formation.

Question 20

When does the 60-month limitation rule NOT apply?

Answer 20

Does not apply if a newly formed eligible entity made the previous election and the election was effective on the date of formation

Question 21

A business must obtain an employer identification number (EIN) if the business meets one of the following conditions: (4)

Answer 21

1. Has one or more employees
2. Files returns for employment or excise taxes
3. Maintains a qualified retirement plan
4. Operates as a corporation, partnership, is a non-profit, estate, or trust (not grantor trust)

Question 22

A business must obtain an employer identification number by filing what form?

Answer 22

Form SS-4

Question 23

How must a taxpayer prove business expenses?

Answer 23

The taxpayer can prove them by maintaining adequate evidence that substantiates the expense and receipts when required. A taxpayer must generally prepare a written or electronic record for it to be considered adequate.

Question 24

What information should be shown on documentary evidence for business expenses?

Answer 24

Documentary evidence should show the amount, date, place, and essential character of the expense.

Question 25

When is documentary evidence not needed for business expenses?

Answer 25

Documentary evidence is not needed if the expenses, other than lodging, is less that $75 or for a transportation expense for which a receipt is not readily available.

Question 26

When is an individual usually considered an independent contractor?

Answer 26

An individual is usually an independent contractor if the employer, the person for whom the individual performs the services, has the right to control of direct only the result of the work and not the means and methods of accomplishing the result.

Question 27

Under common-law rules, who is considered an employee?

Answer 27

Under common-law rules, anyone who performs services for a person is an employee of that person if the employer has the right to control what will be done and how it will be done. What matters is the RIGHT TO CONTROL the details of how the employee performs the services.

Question 28

Is an officer of a corporation considered an employee?

Answer 28

Generally considered an employee. However, an officer who performs no services or only minor services, and neither receives nor is entitled to receive any pay, is not considered an employee.

Question 29

Is a corporate director considered an employee?

Answer 29

A corporate director is not an employee with respect to services performed as a director.

Question 30

The self-employed must pay SECA tax and file Schedule SE is either of the following applies: (2)

Answer 30

1. Net earnings from sel-employment were $400 or more

2. Had church employee income of $108.28 or more

Question 31

In 2020, what tax rate applied to the income from self-employment?

Answer 31

A tax rate of 15.3% to the first $137,700 ($142,800 in 2021), with a rate of 2.9% applied to the excess
For higher-income taxpayers, a .9% Additional Medicare Tax applies when income exceeds on of the following threshold amounts:
MFJ - $250,000
MFS - $125,000
S, HOH, or QW - $200,000

Question 32

FICA stands for: (name plus what taxes it includes)

Answer 32

Federal Insurance Contributions Act

Social Security and Medicare Tax

Question 33

What is the employee tax rate for Social Security?

Answer 33

6.2%

Question 34

What is the employee tax rate for Medicare?

Answer 34

1.45%, with an additional Medicare tax of 0.9% on an individual’s wages paid in excess of $200,000 in a calendar year, without regard to filing status

Question 35

When is an employer required to begin withholding Additional Medicare Tax from an employee?

Answer 35

An employer is required to begin withholding Additional Medicare Tax in the pay period in which it pays wages in excess of $200,000 to an employee and continues to withhold it each pay period until the end of the calendar year.

Question 36

What taxes is their an employer match on?

Answer 36

Social Security
Medicare tax (not including the additional 0.9% for wages in excess of $200,000 a year)

Question 37

What are the parameters for a employer to pay FUTA taxes?

Answer 37

If a company pays $1500 or more in wages to employees during any calendar quarter during 2019 or 2020, or employes one or more employees for at least some part of a day in any 20 or more different weeks during the year, it MUST pay FUTA.

Question 38

Under what circumstances is an employment tax requirements different for a child employed by parents?

Answer 38

Payments for the services of a child under age 18 who works for his or her parent in a trade or business are NOT subject to SS and Medicare taxes if the trade of business is a sole prop or a partnership in which each partner is a parent of the child. Payments for the services of a child under age 21 who works for his or her parent in a trade of business are NOT subject to FUTA tax.

Question 39

When are the wages for the services of a child subject to income tax withholding as well as SS, Medicare, and FUTA taxes? If he or she works for: (3)

Answer 39

1. A Corporation, even if it is controlled by the child’s parent
2. A partnership, even if the child’s parent is a partner, unless each partner is a parent of the child
3. An estate, even if it is the estate of a deceased parent

Question 40

For a spouse employed by another, what taxes is the individual subject to?

Answer 40

Subject to Income tax withholding and SS and Medicare taxes, but NOT to FUTA tax

Question 41

For a parent employed by a child, what taxes is the individual subject to?

Answer 41

Subject to Income tax withholding and SS and Medicare taxes, but NOT to FUTA tax

Question 42

When to pay estimated tax payments for a corporation?

Answer 42

Due by the 15th day of the 4th, 6th, 9th, and 12th months of the corporate tax year

Question 43

When to pay estimated tax payments for an individual?

Answer 43

Due by the 15th day of the 4th, 6th, 9th, and 1st months of the tax year

Question 44

What is the penalty for failure to use EFTPS when required?

Answer 44

10% of the amounts subject to electronic deposit requirements but not deposited using EFTPS

Question 45

How are the monthly and semiweekly deposit schedules determined?

Answer 45

Monthly deposit schedule - tax liability during look back period was $50,000, or less
Semi-weekly deposit schedule - tax liability during look back period was more than $50,000

Question 46

What is the penalty for the person responsible for withholding, accounting for, or depositing or paying specified taxes including NRA withholding and employment taxes, and willfully fail to do so?

Answer 46

Can be held personally liable for a penalty equal to the full amount of the unpaid trust fund tax, PLUS interest