CTC Business Tax & Entity Structures Flashcards

Which type of fringe benefit allows a C corporation to deduct 100% of premiums paid for employee health insurance while the benefit is excluded from the employee's gross income?

Answer: Employer-paid health insurance premiums

Employer-paid health insurance premiums are fully deductible by the C corporation and excluded from the employee's gross income under IRC Section 106.

The accumulated earnings tax is imposed on C corporations that accumulate earnings beyond reasonable business needs primarily to:

Answer: Avoid shareholder-level taxation on dividends

The accumulated earnings tax (currently 20%) targets C corporations that retain earnings to prevent shareholders from paying dividend income tax, rather than distributing those earnings.

Which business tax strategy involves hiring a spouse or child in the business to shift income to a lower tax bracket?

Answer: Income splitting

Income splitting involves employing family members at reasonable compensation levels to shift business income from the higher-bracket owner to lower-bracket family members.

Under the IRC, what is the maximum depreciation deduction allowed under bonus depreciation for qualifying property placed in service in 2023?

Answer: 80%

For property placed in service in 2023, bonus depreciation is 80% under the phase-down schedule established by the Tax Cuts and Jobs Act.

A tax coach recommends converting a single-member LLC taxed as a sole proprietorship to an S corporation primarily to reduce:

Answer: Self-employment tax on business profits

Electing S corporation status for an LLC can reduce self-employment tax by allowing the owner to characterize part of business income as distributions rather than wages.

Which tax provision allows a taxpayer who materially participates in a real estate business as their primary occupation to deduct rental losses against ordinary income without passive loss limitations?

Answer: Real estate professional status under IRC Section 469

A taxpayer who qualifies as a real estate professional under IRC Section 469(c)(7) can treat rental activities as non-passive, allowing losses to offset ordinary income without limitation.