TAXATION OF INDIVIDUALS AND BUSINESS ENTITIES LATEST UPDATE

TAXATION OF INDIVIDUALS AND BUSINESS ENTITIES LATEST UPDATE Corporation - CORRECT ANSWER-Business entity recognized as separate entity from its owners under state law Limited Liability Company (LLC) - CORRECT ANSWER-A type of flow through entity for federal income tax purposes. By state law, the owners of the LLC have limited liability with respect to the entity's debts or liabilities. Limited liability companies are taxed as partnerships for federal income tax purposes General Partnership (GP) (what form?) - CORRECT ANSWER-A partnership with partners who all have unlimited liability with respect to the liabilities of the entity (reported on form 1065) Limited Partnership (LP) (what form?) - CORRECT ANSWER-A partnership with at least one general partner with unlimited liability for the entity's debts and at least one limited partner with liability limited to the limited partner's investment in the partnership (reported on form 1065) Sole Proprietorship (what form?) - CORRECT ANSWER-A business entity that is not legally separate from the individual owner of the business. The income of a sole proprietorship is taxed and paid directly by the owner (reported on form 1040, Schedule C) Articles of incorporation - CORRECT ANSWER-A document, filed by a corporation's founders with the state describing the purpose, place of business, and other details of the corporation Articles of organization - CORRECT ANSWER-a document, filed by a limited liability company's founders with the state, describing the purpose, place of business, and other details of the company Partnership agreement - CORRECT ANSWER-an agreement among the partners in a partnership stipulating the partner's rights and responsibilities in the partnership Certificate of limited partnership - CORRECT ANSWER-a document limited partnerships must file with the state to be formerly recognized by the state. The document is similar to articles of incorporation or articles of organization Flow-through Entities - CORRECT ANSWER-Legal entities, like partnerships, limited liability companies, and S corporations that do not pay income tax. Income and losses from flow through entities are allocated to their owners C corporation - CORRECT ANSWER-A corporate taxpaying entity with income subject to taxation. Such a corporation is termed a "C" corporation because it and its shareholders are subject to the provisions of sub-chapter C of the Internal Revenue Code (reported on form 1120) S coporation - CORRECT ANSWER-A corporation under state law that has elected to be placed under the rules provided in sub-chapter S of the internal revenue code. It is treated like a flow through entity. (reported on form 1120s) Disregarded Entities - CORRECT ANSWER-incorporated entities with one owner that are treated as flow-through entities for U.S. income tax purposes Single member LLCs - CORRECT ANSWER-a LLC with only one member. Single member LLCs with individual owners are taxed as sole proprietorship's Double taxation - CORRECT ANSWER-the tax burden when a entity's income is subject to two levels of tax. Income of a C corporation is subject to double taxation. The first level of tax is at the corporate level and the second level of tax on corporate income occurs at the shareholder level. Income of flow through entities is generally not subject to double taxation. Institutional shareholders - CORRECT ANSWER-entities, such as investment companies, mutual funds, brokerages, insurance companies, pension funds, investment banks, and endowment funds, with large amounts to invest in corporate stock entities Dividend received deduction (DRD) - CORRECT ANSWER-a corporate deduction for part or all of a dividend received from other taxable, domestic corporations Accumulated earnings tax - CORRECT ANSWER-a tax assessed on corporations that retain earnings without a business reason to do so Personal holding companies - CORRECT ANSWER-closely held corporations generating primarily investment income Personal holding company tax - CORRECT ANSWER-penalty tax on the undistributed income of a personal holding company Net operating loss (NOL) - CORRECT ANSWER-The excess of allowable deductions over gross income. Can be carried two years back or 20 years into the future