1. D

All the statements above are true, except that the penalty for excess accumulated earnings is 15%, not 20%.

2. B  

All of the answers are good answers, but there's two key concepts: profitable business and raise capital. A profitable business indicates a need for a separate entity and raise capital indicates that he might want to sell some stock. C-corporation is the best entity for Roger's needs.

3.
A

S-corporations CAN HAVE a trust as shareholder, less than 75 shareholders, only one class of stock, and they avoid double taxation by paying dividends.

4.
C

Betty will have taxable dividends from the utility stock (1099-DIV) and unarned income from the S-corp (Schedule K-1). Since she is no longer working, she would not receive any W-2.

5.
D

General partners have unlimited liability. Partnerships are dissolved at the death, bankruptcy or incapacity of a partner. Partnerships must file a tax return Form 1065, but it is for information purposes only.

6.
B

80% exclusion if ownership in the dividend paying firm is between 20-80%



Introduction

Related Articles
  1. Personal Finance

    What's the Purpose of IRS Form 1065?

    Business partners need the information on this form to complete their own tax returns. Here are the details.
  2. Personal Finance

    How A Schedule K-1 Works

    Schedule K-1 is a U.S. tax document used to report income, losses and dividends.
  3. Entrepreneurship & Small Business

    Which Type of Organization Is Best For Your Business?

    Learn the differences between the types of business organizations so you can determine how to best structure your business for tax and liability limitations.
  4. Markets

    What is a Partnership?

    A partnership is an organization where two or more owners operate a business.
  5. Investing

    Limited Liability Partnership (LLP): The Basics

    LLPs are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.
  6. ETFs & Mutual Funds

    How Private Equity and Hedge Funds are Taxed

    Private equity and hedge funds offer an appealing tax structure for those who can afford to invest in them. Here's why.
  7. Investing

    Asset Protection For The Business Owner

    Could incorporating your business help protect it? Find out here.
  8. Retirement

    Dividends Still Look Good After All These Years

    Find out how this "first love" still holds its bloom as it ages.
  9. Investing

    MLPs and Limited Partnerships: How They Differ

    Limited partnerships and master limited partnerships have one difference that makes all the difference.
  10. Retirement

    Understanding How Dividends Are Taxed

    Learn how dividends are taxed by the IRS, and understand the different types of dividend income as well as the capital gains tax rates.
Trading Center