Business Taxation & Entity Structures Flashcards

An S corporation shareholder's basis in their stock is increased by which of the following?

Answer: Non-separately stated income items

Non-separately stated (ordinary) income items passed through from an S corporation increase a shareholder's stock basis.

Which entity type allows for a 'check-the-box' election to be taxed as a corporation?

Answer: Limited liability company (LLC)

LLCs can use the check-the-box regulations to elect their tax classification, including electing to be taxed as a corporation.

For a partnership, what is the tax treatment of guaranteed payments made to a partner for services?

Answer: They are deductible by the partnership and ordinary income to the partner

Guaranteed payments are deductible by the partnership as a business expense and are treated as ordinary income to the receiving partner.

A C corporation with $100,000 of taxable income pays corporate income tax at what current flat rate?

Answer: 21%

The Tax Cuts and Jobs Act of 2017 established a flat 21% corporate income tax rate for C corporations.

Which of the following is a disadvantage unique to C corporations compared to pass-through entities?

Answer: Double taxation of corporate profits

C corporations face double taxation because profits are taxed at the corporate level and again when distributed as dividends to shareholders.

Under IRC Section 199A, which type of entity's qualified business income is eligible for the 20% deduction by its owners?

Answer: S corporations

The Section 199A deduction is available to owners of pass-through entities including S corporations, partnerships, and sole proprietorships.

A limited partner in a partnership generally cannot deduct losses in excess of what amount?

Answer: Their at-risk basis in the partnership

At-risk rules under IRC Section 465 limit loss deductions to the amount the taxpayer has at risk, which for limited partners typically equals their capital contributions plus recourse debt obligations.