CTC Business Taxation & Entity Structures

Question 1

What is a primary tax benefit of forming an S corporation?

Accepted Answer

It avoids double taxation by passing income directly to shareholders

Answer

It eliminates all federal taxes.

Answer

It allows for unlimited shareholders.

Answer

It provides special tax exemptions.

Question 2

Which entity type allows for the greatest flexibility in profit distribution?

Accepted Answer

Partnership

Answer

C corporation

Answer

LLC

Answer

S corporation

Question 3

What tax form is used by a sole proprietorship to report income?

Accepted Answer

Schedule C with Form 1040

Answer

Form 1120

Answer

Form 1065

Answer

Form 2553

Question 4

What is the default federal tax classification for a single-member LLC?

Accepted Answer

Disregarded entity

Answer

S corporation

Answer

Partnership

Answer

C corporation

Question 5

Which of the following is a characteristic of a C corporation?

Accepted Answer

Subject to double taxation

Answer

Income passes through to shareholders only

Answer

Not subject to income tax

Answer

Avoids corporate tax

Question 6

Which tax form is used by partnerships to report income to the IRS?

Accepted Answer

Form 1065

Answer

Form 1120S

Answer

Schedule C

Answer

Form 1099

Question 7

What is the corporate tax rate for C corporations under current federal law?

Accepted Answer

21%

Answer

15%

Answer

28%

Answer

35%

Question 8

Which entity must file Form 1120S with the IRS?

Accepted Answer

S corporation

Answer

LLC

Answer

C corporation

Answer

Partnership

Question 9

What is one drawback of operating as a sole proprietorship?

Accepted Answer

Unlimited personal liability

Answer

No requirement to pay taxes

Answer

Limited liability protection

Answer

Must incorporate annually