Dave and his friend Stewart each own 50 percent of KBS. During the year, Dave re

Question

Dave and his friend Stewart each own 50 percent of KBS. During the year, Dave receives $50,000 compensation for services he performs for KBS during the year. He performed a significant amount of work for the entity and he was heavily involved in management decisions (he was not a passive investor in KBS). After deducting Dave’s compensation, KBS reports taxable income of $48,500.

How much FICA and/or self-employment tax is Dave required to pay on his compensation and his share of the KBS income if KBS is formed as a C corporation, S corporation, or a limited liability company (ignore the .9 percent additional Medicare tax)? (Do not round any percentage calculations. Round other intermediate calculations and final answers to the nearest whole dollar amount.)

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The following information applies to the questions displayed below.]

Mickey, Mickayla, and Taylor are starting a new business (MMT). To get the business started, Mickey is contributing $104,000 for a 40 percent ownership interest, Mickayla is contributing a building with a value of $104,000 and a tax basis of $78,000 for a 40 percent ownership interest, and Taylor is contributing legal services for a 20 percent ownership interest.

What amount of gain is each owner required to recognize under each of the following alternative situations? [Hint: Look at §351 and §721.] (Leave no answer blank. Enter zero if applicable.)

a. MMT is formed as a C corporation.

b. MMT is formed as an S corporation.

c. MMT is formed as an LLC.

Explanation / Answer

As per policy only first question will be answered completely

C corporation = 50000*7.65%= 3825

S corporation = 50000*7.65%=3825

Limited liability company = (((50000 +(48500*50%)*92.35%)*15.30%) =10491

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