LaShonda Tate
Kaplan University
Corporate Tax Decisions and Strategies
Unit 1

Chapter 1

12. What are three characteristics of a sole proprietorship? Are these characteristics the same as or different from those of a partnership?

Three characteristics of a sole proprietorship are 1.) the person cannot be an employee of the business, 2.) that person is solely liable for all debts of the business, and 3.) the results of operations are reported on a Schedule C which is included in the owners personal tax return. Majority of these characteristics are different than those of a partnership; however, they both share common characteristics which are the owner is responsible for the company’s debt and partners/owners cannot be employees. In a partnership, there can be more than one owner general partner and each is liable for partnership debts. Limited partners are only liable for their investment in the partnership partners if the partnerships elect to be treated as limited liability companies to enjoy limited liability.

19. Taxable Income
The Warner Corporation has gross income of $560,000. It has business expenses of $325,000, a capital loss of $20,000 and $2,500 of interest income on temporary investments. What is the corporation’s taxable income?

Solution: Taxable income = $237,500 $560,000 Gross income plus 2,500 Interest income minus 325,000 Expenses equals $237,500 Taxable income The $20,000 capital loss is not deductible

30. Hunter Corporation has $250,000 in gross income, $125,000 in deductible business expenses, and a $12,000 business tax credit. Determine the corporation’s net tax liability.

Solution: The net tax liability is $20,000. $250,000 gross income - $125,000 expenses = $125,000 taxable income.

The income tax liability is:
$50,000 x 15% = $7,500
$25,000 x 25% = 6,250
$25,000 x 34% = 8,500
$25,000 x 39%