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Exam 15: Entities Overview

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Question 51

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If you were seeking an entity with the most favorable tax treatment regarding (1) the number of owners allowed, (2) the flexibility to select your accounting period, and (3) the availability of preferential capital gains rates when selling your ownership interest, which entity should you decide to use?

A) C corporation.
B) S corporation.
C) Partnership.
D) Sole proprietorship.

E) A) and B)
F) A) and C)

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Question 52

Multiple Choice

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What document must an LLC file with the state to organize its business?

A) Articles of incorporation.
B) Certificate of LLC.
C) Articles (or a certificate) of organization.
D) Partnership agreement.
E) None of the choices is correct. An LLC does not have to file with the state to organize its business.

F) B) and C)
G) A) and D)

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Question 53

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Corporations are legally better suited for taking a business public compared with LLCs and general partnerships.

S corporations have more restrictive ownership requirements than other entities.

In 2020, Aspen Corporation reported $120,000 of taxable income before the net operating loss (NOL)deduction. It had an NOL carryover of $60,000 from 2018 and an NOL carryover from 2019 of $40,000. How much tax will Aspen Corporation pay on its 2020 tax return?

An unincorporated entity with more than one owner is, by default, taxed as a partnership.

David would like to organize HOS (a business entity)as either an S corporation or as a corporation (taxed as a C corporation)generating a 12 percent annual before-tax return on a $312,000 investment. David's marginal tax rate is 24 percent and the corporate tax rate is 21 percent. David's marginal tax rate on individual capital gains and dividends is 15 percent. HOS will pay out its after-tax earnings every year to either its members or its shareholders. If HOS is taxed as an S corporation, David's business income allocation would be subject to a 3.8 percent net investment income tax (he is a passive investor in the business), and the business income allocation would qualify for the deduction for qualified business income. (Round your intermediate calculations and final answer to whole number dollar amount.)a. How much would David keep after taxes if HOS is organized as either an S corporation or a C corporation?b. What are the overall tax rates (combined owner and entity level)if HOS is organized as either an S corporation or a C corporation?