TAX ACCOUNTING EXAM 3 2025
QUESTIONS AND ANSWERS
What is a tax advantage for gift of capital partnership interest?
It must be figured by increasing the partnership income by reasonable compensation for
services the donor renders to the partnership.
Tax advantage of shifting income to a family member that has a lower marginal tax rate than
the original partners.
Family member will have a voice in the day to day operations and be able to hold the cash upon
liquidation.
The donee's distributive share of partnership income attributable to donated capital must be
proportionately greater than the donor's distributive share attributable to the donor's capital. -
ANS Tax advantage of shifting income to a family member that has a lower marginal tax rate
than the original partners.
A business generates profit of $100,000. The owner has a 37% marginal tax rate. What amount
of corporate and individual income tax will be paid on this profit if the business is a regular
corporation and no income is distributed? Corporate tax, $0; individual tax, $37,000
Corporate tax, $21,000; individual tax, $37,000
Corporate tax, $21,000; individual tax, $0
Corporate tax, $21,000; individual tax, $15,800 - ANS Corporate tax, $21,000; individual tax,
$0
1 @COPYRIGHT THEBRIGHT 2025/2026
, Which of the following statements regarding the tax burden imposed on business entities is
true?
The tax burden imposed on corporate earnings is always lower if the corporation makes an S
election.
Business owners desiring current cash flow can maximize annual after-tax cash flow by
operating as a regular corporation.
Current tax cost associated with shareholder cash flow received as dividends may be lower than
cash flow received as payments of salary, interest, or rental income.
All of these statements are true. - ANS **NOT SURE BOUT THIS ONE
Current tax cost associated with shareholder cash flow received as dividends may be lower than
cash flow received as payments of salary, interest, or rental income.
Gwen and Travis organized a new business as an LLC in which they own equal interests. The
new business generated a $10,000 operating loss its first year. Travis has no other taxable
income for the current year, but expects to have sufficient taxable income in future years to
pay tax in the 24% tax bracket. Which of the following statements regarding Travis' tax savings
from the current LLC loss is true?
Travis can only use his share of the LLC loss in the current year, and will receive no tax savings.
The LLC will reallocate Travis share of the loss to Gwen, who can claim $1,750 of additional tax
savings.
Travis can carry his share of LLC loss back two years as a net operating loss, and request an
immediate tax refund of $1,200.
2 @COPYRIGHT THEBRIGHT 2025/2026
QUESTIONS AND ANSWERS
What is a tax advantage for gift of capital partnership interest?
It must be figured by increasing the partnership income by reasonable compensation for
services the donor renders to the partnership.
Tax advantage of shifting income to a family member that has a lower marginal tax rate than
the original partners.
Family member will have a voice in the day to day operations and be able to hold the cash upon
liquidation.
The donee's distributive share of partnership income attributable to donated capital must be
proportionately greater than the donor's distributive share attributable to the donor's capital. -
ANS Tax advantage of shifting income to a family member that has a lower marginal tax rate
than the original partners.
A business generates profit of $100,000. The owner has a 37% marginal tax rate. What amount
of corporate and individual income tax will be paid on this profit if the business is a regular
corporation and no income is distributed? Corporate tax, $0; individual tax, $37,000
Corporate tax, $21,000; individual tax, $37,000
Corporate tax, $21,000; individual tax, $0
Corporate tax, $21,000; individual tax, $15,800 - ANS Corporate tax, $21,000; individual tax,
$0
1 @COPYRIGHT THEBRIGHT 2025/2026
, Which of the following statements regarding the tax burden imposed on business entities is
true?
The tax burden imposed on corporate earnings is always lower if the corporation makes an S
election.
Business owners desiring current cash flow can maximize annual after-tax cash flow by
operating as a regular corporation.
Current tax cost associated with shareholder cash flow received as dividends may be lower than
cash flow received as payments of salary, interest, or rental income.
All of these statements are true. - ANS **NOT SURE BOUT THIS ONE
Current tax cost associated with shareholder cash flow received as dividends may be lower than
cash flow received as payments of salary, interest, or rental income.
Gwen and Travis organized a new business as an LLC in which they own equal interests. The
new business generated a $10,000 operating loss its first year. Travis has no other taxable
income for the current year, but expects to have sufficient taxable income in future years to
pay tax in the 24% tax bracket. Which of the following statements regarding Travis' tax savings
from the current LLC loss is true?
Travis can only use his share of the LLC loss in the current year, and will receive no tax savings.
The LLC will reallocate Travis share of the loss to Gwen, who can claim $1,750 of additional tax
savings.
Travis can carry his share of LLC loss back two years as a net operating loss, and request an
immediate tax refund of $1,200.
2 @COPYRIGHT THEBRIGHT 2025/2026
