Taxation of Business Entities -
Chapter 3 with correct
questions and answers
usr
[COMPANY NAME] [Company address]
, 1. Flow-through entities Answer: Partnerships, S corporations, LLCs (with at least two
owners)
2. Income reported on Schedule C of Form 1040 Answer: Sole
Proprietorships
3. Standalone Entities Answer: (C, Regular) corporations, Form 1120
4. Partnerships Answer: Separate entity, does not pay tax, (Each partner receives a) Schedule K-1
5. S Corporation Answer: Separate entity, does not pay tax, shareholders report proportionately
6. Fundamental Concept of C Corporations Answer: Double taxation
7. C Corporations Tax 1 Answer: Reporting of income, expenses, and computed tax on taxable
income on Form 1120
8. C Corporation Tax 2 Answer: Shareholders report dividend income on tax returns when
corporation distributes its income. NO deduction for paying a dividend.
9. Individual Preferential Tax Rate (10% or 12%) Answer: 0%
10. Individual Preferential Tax Rate (22%, 24%, 32%, 35%) Answer:
15%
11. Individual Preferential Tax Rate (37%) Answer: 20%
12. Corporate Income Tax Rate Answer: 21%
13. Nontax Issues in Selecting Entity Form Answer: Liability (Sole proprietors
and some partners have unlimited liability for claims against the entity)
Capital-Raising (Corporations and partnerships to a lesser extent can raise large amounts of capital for
entity ventures) Transferability (Corporate stock is easily sold, but partners must approve partnership
interest transfer)
Continuity of Life (Corporations exist indefinitely)
Centralized management (Corporate actions are governed by a board of directors; Partnership operations
may be conducted by each partner without approval by other partners)
14. LLC (Limited Liability Companies) Answer: Allows owners to avoid unlimited
liability. Treated as a partner- ship with 2 or more owners.
15. Corporate and Individual Tax Treatment (Similarities) Answer: Gross
income, Business Deduc- tions
16. Corporate and Individual Tax Treatment (Dissimilarities) Answer:
Tax rates, all deductions are business deductions, corp has no AGI, corp does not deduct
standard or itemized deductions
17. Major difference between corp and individual tax treatment
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5
Chapter 3 with correct
questions and answers
usr
[COMPANY NAME] [Company address]
, 1. Flow-through entities Answer: Partnerships, S corporations, LLCs (with at least two
owners)
2. Income reported on Schedule C of Form 1040 Answer: Sole
Proprietorships
3. Standalone Entities Answer: (C, Regular) corporations, Form 1120
4. Partnerships Answer: Separate entity, does not pay tax, (Each partner receives a) Schedule K-1
5. S Corporation Answer: Separate entity, does not pay tax, shareholders report proportionately
6. Fundamental Concept of C Corporations Answer: Double taxation
7. C Corporations Tax 1 Answer: Reporting of income, expenses, and computed tax on taxable
income on Form 1120
8. C Corporation Tax 2 Answer: Shareholders report dividend income on tax returns when
corporation distributes its income. NO deduction for paying a dividend.
9. Individual Preferential Tax Rate (10% or 12%) Answer: 0%
10. Individual Preferential Tax Rate (22%, 24%, 32%, 35%) Answer:
15%
11. Individual Preferential Tax Rate (37%) Answer: 20%
12. Corporate Income Tax Rate Answer: 21%
13. Nontax Issues in Selecting Entity Form Answer: Liability (Sole proprietors
and some partners have unlimited liability for claims against the entity)
Capital-Raising (Corporations and partnerships to a lesser extent can raise large amounts of capital for
entity ventures) Transferability (Corporate stock is easily sold, but partners must approve partnership
interest transfer)
Continuity of Life (Corporations exist indefinitely)
Centralized management (Corporate actions are governed by a board of directors; Partnership operations
may be conducted by each partner without approval by other partners)
14. LLC (Limited Liability Companies) Answer: Allows owners to avoid unlimited
liability. Treated as a partner- ship with 2 or more owners.
15. Corporate and Individual Tax Treatment (Similarities) Answer: Gross
income, Business Deduc- tions
16. Corporate and Individual Tax Treatment (Dissimilarities) Answer:
Tax rates, all deductions are business deductions, corp has no AGI, corp does not deduct
standard or itemized deductions
17. Major difference between corp and individual tax treatment
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5
