ITX - 35A Flashcards
Business Form: Owners’ Liability - Unlimited personal liability
Sole Proprietor
Partnership
Business Form: Owners’ Liability - Unlimited personal liability, including liability for the acts of partners
Partnership
Business Form: Owners’ Liability - Limited personal liability
Business Form:
S Corporation
Limited Liability Company
C Corporation
Business Form: Organization Costs - None needed except for possible local licensing
Sole Proprietor
Business Form: Organization Costs - No formal agreement is required unless it is a limited ___. A written agreement is recommended
Business Form: Partnership
Partnership
Business Form: Organization Costs - Organized like a regular corporation and filed with the state. Election must be signed by all shareholders and filed with the IRS.
S Corporation
Business Form: Organization Costs - Articles of Organization must be filed with the state. Governed by state law.
LLC
Business Form: Organization Costs - Articles of Incorporation must be filed with the state, which will require a payment of fees. Legal assistance may be required.
C Corporation
Business Form: Management - Sole owner makes the decisions
Sole Proprietorship
Business Form: Management - Decisions are made according to the ___ agreement - in the absence of one, partners vote according to their share of profits.
Business Form: Partnership
- Partnership
Business Form: Management - Shareholders elect the board of directors, who, in turn, appoint management to make day-to-day decisions. Shareholders should ratify major decisions.
Business Form:
S Corporation
C Corporation
Business Form: Management - The owners, called members, choose managers according to the organizational agreement.
LLC
Business Form: Taxation of Owners - All net income from the ___ is subject to income tax and self-employment tax, whether or not received by the owner.
Business Form: Sole Proprietorship
- Sole Proprietorship
Business Form: Taxation of Owners - All net income of the ___ is allocated to the partners, according to the ___ agreement. It is self-employment income for ___ partners, but not for ___ partners.
Business Form: Partnership
- Partnership
- Partnership
- General
- Limited
Business Form: Taxation of Owners - Owners can be employees of the corporation and receive salary that is taxable to the ___ and deductible to the ___. Net income is allocated to the shareholders according to their ___ and is not subject to ___ tax.
Business Form: S Corporation
- Recipient
- Corporation
- stock ownership
- self-employment
Business Form: Taxation of Owners - Members are taxed the same way as partners, if that option is chosen.
LLC
Business Form: Taxation of Owners - Owners can be employees and receive taxable income as salary, which is ___ by the corporation. Net income from the corporation is taxed at the ___ level. Shareholders are taxed ___ on dividends received.
Business Form: C Corporation
- Deductible
- Corporate
- Separately
Business Form: Losses - May offset losses against income from other sources, up to the amount at risk
Sole Proprietor
Business Form: Losses - A ___ partner who actively participates in the business may deduct losses up to his or her basis against other income. For ___ partners, losses are passive.
Business Form: Partnership
- General
- Limited
Business Form: Losses - An active shareholder is treated like a ___ partner and may deduct his or her share of losses against other income.
Business Form: S Corporation
- General
Business Form: Losses - An active member is treated like a ___ partner.
Business Form: LLC
- General
Business Form: Losses - Losses may be carried back 2 years and forward 20 years to offset other income, but have no effect on shareholders.
C Corporation
Business Form: Basis/Amount at Risk - All assets personally committed to the business make up basis.
Sole Proprietor
Business Form: Basis/Amount at Risk - A ___ partner has a basis in his or her ___ share equal to the amount paid, plus/minus his or her share of the income (or loss) from the ___, less any withdrawals, plus his or her share of ___ liabilities.
Business Form: Partnership
- General
- Partnership
- Partnership
- Partnership
Business Form: Basis/Amount at Risk - A shareholder’s basis is the amount paid plus/minus his or her share of income/loss from the corporation, less withdrawals. ___ loans to the corporation are added to basis, but not loans taken by the ___.
Business Form: S Corporation
- Shareholder
- S Corporation
Business Form: Basis/Amount at Risk - An active member is treated like a ___ partner, and a passive member is treated like a ___ partner. Active members’ basis increases for loans to the ___ by the members, as well as for loans taken by the ___.
Business Form: LLC
- General
- Limited
- LLC
- LLC
Business Form: Basis/Amount at Risk - A shareholder’s basis is the purchase price. Return of capital reduces basis. Reinvesting dividends increases basis. Basis is allocated to additional shares in a stock split or stock dividend.
C Corporation
Business Form: Retirement Plans - Most plans are available. Contribution limits are calculated on net self-employment income and are deductible on page 1 of Form 1040, not as a business expense.
Business Form:
Sole Proprietor
Partnership
LLC
Business Form: Retirement Plans - Includes guaranteed payments
Partnerships
Business Form: Retirement Plans - Most plans are available. Owners must be employees to participate, and contributions for owners are calculated as for other employees.
Business Form:
S Corporation
C Corporation
Business Form: Employee/Owner Benefits - Health insurance premiums are 100% deductible. Life insurance premiums on the owner are income to the owner.
Business Form:
Sole Proprietor
Partnership
LLC
Business Form: Employee/Owner Benefits - Employee benefits are nontaxable only for the employees who own less than 2% of stock.
S Corporation
Business Form: Employee/Owner Benefits - Owner/employees can be provided with health, disability, and group term life (up to $50,000) with no taxable income to the owner/employee.
C Corporation
Business Form: Restriction on Owners - None
Business Form: Sole Proprietor Partnership LLC C Corporation
Business Form: Restriction on Owners - Up to 100 shareholders that are domestic individuals, estates, or certain trusts.
S Corporation
Business Form: Transfer of Ownership - Sale of assets only
Sole Proprietor
Business Form: Transfer of Ownership - ___ agreement should govern how transfer takes place and who must approve it. The seller reports a gain on the difference between the sale price and basis, with special allocation to ___.
Business Form: Partnership
- Partnership
- Inventory and receivables
Business Form: Transfer of Ownership - Ownership can be transferred by a simple sale of stock. Bylaws may restrict sales to ensure compliance.
Business Form:
S Corporation
C Corporation
Business Form: Transfer of Ownership - The operating agreement should do the same as a partnership agreement.
LLC
Business Form: Risk Protection - None. The owner is liable for all losses; the owner should avoid risky activity and/or should insure.
Business Form:
Sole Proprietor
Partnership
Business Form: Risk Protection - Owners have limited liability, so they can engage in risky activity
Business Form:
S Corporation
LLC
C Corporation
Basis/Amount at Risk: Partnership - A general partner has a basis in his or her partnership share equal to the amount ___, plus/minus his or her share of the ___ from the partnership, less any ___, plus his or her share of ___.
- paid
- income (or loss)
- withdrawals
- partnership liabilities
Basis/Amount at Risk: S Corporation - A shareholder’s basis is the amount ___ plus/minus his or her share of ___ from the corporation, less ___. Shareholder loans to the corporation are ___ to basis, but not loans taken by the S corporation.
- paid
- income/loss
- withdrawals
- added
Basis/Amount at Risk: LLC - Active members’ basis ___ for loans to the LLC by the members, as well as loans taken by the LLC.
increases
Basis/Amount at Risk: C Corporation - A shareholder’s basis is the ___. Return of capital ___ basis. Reinvesting dividends ___ basis. Basis is allocated to additional shares in a ___.
- purchase price
- reduces
- increases
- stock split or stock dividend
