South-Western Federal Taxation - Chapter 17- Corporations Test Bank Solution Manual (Graded A+)
sole proprietorship - Answers - business is not a separate entity
- unlimited liability, personal assets at risk
- income is taxable to individual on Sch C/1040
- income/expenses retain their character/nature (e.g. ordinary/capital gains, etc.)
partnerships - Answers - unlimited liability, partners' personal assets at risk
- business reports income on a Form 1065
- not subject to Federal income tax
- must file separately
- most income/expenses aggregated on 1065
- some separately stated items include interest, dividend income, and long-term capital gains
- partnership income/loss flows to partners and is taxable at individual level
S corporations - Answers - governed by Subchapter S of IRC
- files on Form 1120
- generally don't pay Federal income tax
- similar to partnerships, income/loss flows to shareholders
C corporations - Answers - governed by Subchapter C of IRC
- separate business entity
- files on Form 1120
- subject to entity-level Federal income tax
- results in double-taxation effect
- dividends distributed to shareholders are taxable at the individual level
- easy to raise large amounts of capital through widespread stock ownership
regular corporations - Answers C corporations are considered regular corporations
limited liability company (LLC) - Answers - avoids unlimited liability exposure
sole proprietorship - Answers - business is not a separate entity
- unlimited liability, personal assets at risk
- income is taxable to individual on Sch C/1040
- income/expenses retain their character/nature (e.g. ordinary/capital gains, etc.)
partnerships - Answers - unlimited liability, partners' personal assets at risk
- business reports income on a Form 1065
- not subject to Federal income tax
- must file separately
- most income/expenses aggregated on 1065
- some separately stated items include interest, dividend income, and long-term capital gains
- partnership income/loss flows to partners and is taxable at individual level
S corporations - Answers - governed by Subchapter S of IRC
- files on Form 1120
- generally don't pay Federal income tax
- similar to partnerships, income/loss flows to shareholders
C corporations - Answers - governed by Subchapter C of IRC
- separate business entity
- files on Form 1120
- subject to entity-level Federal income tax
- results in double-taxation effect
- dividends distributed to shareholders are taxable at the individual level
- easy to raise large amounts of capital through widespread stock ownership
regular corporations - Answers C corporations are considered regular corporations
limited liability company (LLC) - Answers - avoids unlimited liability exposure
