1. An S corporation\'s ordinary business income is taxed in the following way: T
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Question
1.An S corporation's ordinary business income is taxed in the following way:
The S corporation pays tax on the S corporation's ordinary business income.
All S corporation income is passed through to the individual shareholders. The individual shareholders pay tax on their share of the S corporation ordinary business income. The individual shareholders do not pay self-employment tax on all S corporation ordinary business income.
All S corporation income is passed through to the individual shareholders. The individual shareholders pay tax on their share of the S corporation ordinary business income. The individual shareholders must also pay self-employment tax on all S corporation ordinary business income.
The S corporation income is always considered self-employment income to each of the shareholders and the shareholders only pay self-employment tax on the S corporation's ordinary business income. Shareholders are not required to pay income tax on their share of S corporation's ordinary business income received.
2. A taxpayer who receives a Schedule K-1 (Form 1041) typically:
Is the beneficiary of a decedent's trust.
Is an individual who owns shares of common stock but does not participate in the corporation.
Holds an interest in a partnership or is a member of an LLC filing as a partnership.
Is drawing income from the partnership that is always self-employment income.
3. On March 1, John contributed $5,500 for a 10% interest in the general partnership, Tya's Kites. Tya's Kites took out a loan for $10,000 on May 15. John's distributive share for the year was $3,800. What is his ending basis in the partnership?
$6,880
$9,300
$10,300
$19,300
4. Which of the following is NOT an item that increases the basis of a shareholder's S corporation stock?
A .Ordinary income of the S corporation that is allocated to the shareholder.
A net operating loss (NOL) of the S corporation that is allocated to the shareholder.
A recapture of the §179 depreciation expense.
Separately stated items of income and gain from the S corporation.
5.What is the correct order in which the three limitations on potential losses must be applied?
First at-risk limitation, second basis limitation, and last, passive activity limitation.
First passive activity limitation, second basis limitation, and last, at-risk limitation.
First basis limitation, second passive activity limitation, and last, at-risk limitation.
First basis limitation, second at-risk limitation, and last, passive activity limitation.
6.
The S corporation pays tax on the S corporation's ordinary business income.
All S corporation income is passed through to the individual shareholders. The individual shareholders pay tax on their share of the S corporation ordinary business income. The individual shareholders do not pay self-employment tax on all S corporation ordinary business income.
All S corporation income is passed through to the individual shareholders. The individual shareholders pay tax on their share of the S corporation ordinary business income. The individual shareholders must also pay self-employment tax on all S corporation ordinary business income.
The S corporation income is always considered self-employment income to each of the shareholders and the shareholders only pay self-employment tax on the S corporation's ordinary business income. Shareholders are not required to pay income tax on their share of S corporation's ordinary business income received.
Explanation / Answer
1.
An S corporation's ordinary business income is taxed in the following way:
All S corporation income is passed through to the individual shareholders. The individual shareholders pay tax on their share of the S corporation ordinary business income. The individual shareholders do not pay self-employment tax on all S corporation ordinary business income.
Explanation:
A S Corporation is pass-through entity. Therefore, it is not recquired to pay federal income tax. It is the shareholders who pay income tax on the their share of the S Corporations income. Also, in case of a S Corporation shareholders are not required to pay any self-employment tax on their share of the income.
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