CTC Business Tax & Entity Structures Flashcards

Which entity type allows business owners to avoid self-employment tax on a portion of their income by splitting earnings into salary and distributions?

Answer: S corporation

S corporations allow owner-employees to pay themselves a reasonable salary subject to payroll taxes while taking additional profits as distributions not subject to self-employment tax.

A C corporation currently pays a flat federal income tax rate of:

Answer: 21%

The Tax Cuts and Jobs Act of 2017 reduced the C corporation flat tax rate to 21%, replacing the previous graduated rate structure.

Which deduction allows self-employed individuals and pass-through entity owners to deduct up to 20% of qualified business income?

Answer: Qualified Business Income (QBI) deduction

The Section 199A QBI deduction allows eligible taxpayers to deduct up to 20% of qualified business income from pass-through entities, subject to income thresholds and limitations.

When a business elects Section 179 expensing, it allows the owner to:

Answer: Immediately deduct the full cost of qualifying business property

Section 179 allows businesses to immediately expense the full purchase price of qualifying equipment and property in the year it is placed in service, rather than depreciating it over time.

For a Certified Tax Coach, which entity conversion strategy may trigger built-in gains tax?

Answer: Converting a C corporation to an S corporation

When a C corporation converts to an S corporation, any appreciated assets are subject to the built-in gains tax if disposed of within the recognition period (generally 5 years).

A qualified opportunity zone investment primarily provides which tax benefit?

Answer: Deferral and potential exclusion of capital gains

Investing capital gains into a Qualified Opportunity Fund allows taxpayers to defer those gains and potentially exclude appreciation on the fund investment if held for at least 10 years.