Discussion Problems
- Can a sole proprietorship be described as a passthrough entity?
- This year, Firm Q, a cash basis taxpayer, remitted $26,800 of FICA payroll tax to the federal government. However, the firm deducted only $13,400 FICA tax on its income tax return. Can you explain this apparent inconsistency?
- Why is only one half of a sole proprietor’s self employment tax generally deductible in the computation of taxable income?
- Mrs. G, Mr. Y, and Mrs. N want to become co owners of a business enterprise. Compare the extent of their personal liability for the debts incurred by the enterprise if they organize as:
a) A general partnership
b) A limited partnership
c) An LLC
d) An S corporation
- Why are certain items of income, gain, deduction, or loss separately stated on a partnership or an S corporation tax return?
- Four years ago, Mr. JB purchased 1,000 shares of UPF Inc., for $10,000. These shares represent a 30 percent equity interest in UPF, which is an S corporation. This year, UPF defaulted on a $120,000 debt to a major creditor.
a) To what extent can the creditor demand repayment of the debt from Mr. JB?
b) Would your answer change if UPF is a partnership in which Mr. JB is a 30 percent general partner?
c) Would your answer change if UPF is a partnership in which Mr. JB is a 30 percent limited partner?
d) Would your answer change if UPF is an LLC in which Mr. JB is a 30 percent member?