Running head: Unit 1

Unit 1 Assignment
AC507 Corporate Tax Decisions and Strategies

Unit 1 Assignment
#12: What are three characteristics of Sole Proprietorships? * One-owner business (Dennis-Escoffier & Fortin, 2013). * Proprietor has unlimited liability (Dennis-Escoffier & Fortin, 2013). * No formal filing with the state (Dennis-Escoffier & Fortin, 2013). * May have no employees or can be a large business with many employees (Dennis-Escoffier & Fortin, 2013). * No separate tax return; individual form 1040 and Form SE (Self Employment Tax) (Dennis-Escoffier & Fortin, 2013). * Tax advantage that business loss can reduce or shelter the taxpayer’s other income (Dennis-Escoffier & Fortin, 2013). * Owner is fully liable for all debts of the business and could lose all of his or her personal assets (Dennis-Escoffier & Fortin, 2013). * Not a separate entity from the owner (Dennis-Escoffier & Fortin, 2013).
Are these characteristics the same as or different from those of a partnership?
The characteristics of a partnership differ from a sole proprietorship in the following: * Two or more individuals (Dennis-Escoffier & Fortin, 2013). * Can be an individual or any type of entity such as a corporation, an estate, or a trust (Dennis-Escoffier & Fortin, 2013). * Same as sole proprietorship that must pay self employment taxes (Dennis-Escoffier & Fortin, 2013).
What are three characteristics of a Limited Liability Company that differs from those of a partnership? * “Creature of the state” (Dennis-Escoffier & Fortin, 2013). * Files articles of organization and must have an operating agreement (Dennis-Escoffier & Fortin, 2013). * Treated as a partnership for tax purposes unless elects to be taxes as a corporation (Dennis-Escoffier & Fortin, 2013).
#19: Gross Income: $560,000 Interest Income: + $2,500 Expenses: -$325,000 Taxable Income: $237,500 The $20,000 capital loss is not deductible. #30: Gross Income: $250,000 Expenses: - $125,000 Taxable Income: $125,000 Net Tax Liability: $20,000 $50,000 * .15 = $7,500 $25,000 * .25 = $6,250 $25,000 * .34 = $8,500 $25,000 * .39 = $9,750 Gross tax = $32,000 Less tax credit $12,000 Net tax = $20,000 #36: Partnership: June = $64,000/2 = $32,000 * .35 = $11,200 John = $64,000/2 = $32,000 * .25 = $8,000 $11,200 + $8,000 = $19,200 S Corporation: If June and John have not ceased to qualify for an S Corporation status, they have the same limited liability protection as a C corporation and avoid double taxation (Dennis-Escoffier & Fortin, 2013). This S Corporation status allows profits and losses to pass through to the individual owners (Dennis-Escoffier & Fortin, 2013). Hence the $32,000 will pass through them at the marginal tax rates as indicated above in the partnership. C Corporation: Per Corporate Tax rates: 0 - $50,000 15% $50,001 - $75,000 25% = ($50,000 * .15) + ($14,000 * .25) = $11,000
#40:
Beginning basis = $4,000 Ordinary Income = $7,000 Distribution = $3,000 30% partner $7,000 * .30 = $2,100 $3,000 * .30 = $900 $4,000 + $2,100 - $900 = $5,200 basis

References
Dennis-Escoffier, S. Fortin, K. (2013). Taxation for Decision Makers. John Wiley & Sons. Hoboken, NJ.