Chapter 15 Advanced Income Tax

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2012 Edition Spilker

Which of the following legal entities file documents with the state to be formally recognized by the state?

Limited Liability Company

Which legal entity is generally best suited for going public?

Corporation

On which tax form do single member LLCs with one individual owner report their income and losses?

Form 1040, Schedule C

On which tax form do LLCs with more than one owner report their income and losses?

FORM 1065

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

Shareholders will be taxed when they sell their shares at a gain

Assume you plan to start a new enterprise; you know the probability of having losses for the first three years of operations is almost 90 percent, and you know you will report a substantial amount of income from other sources during those same three years. From a tax perspective, which of the following entity choices would be least favorable?

C corporation

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?

31,250

Which of the following entity characteristics are generally key drivers for small business owners in deciding which entity to choose?

A and C

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