Question 1

During 2015, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

Accepted Answer

To calculate the self-employment tax, you first need to determine the net profit by subtracting any allowable business expenses from the earnings. Let's assume Elena had $5,500 of allowable expenses, so her net profit on Schedule C is $24,500 - $5,500 = $19,000.

Next, you need to calculate the self-employment tax, which is 15.3% of the net profit. This tax consists of two parts: 12.4% for Social Security tax and 2.9% for Medicare tax. Self-employed individuals pay both parts of this tax on their net income.

So, Elena's self-employment tax is 15.3% * $19,000 = $2,907. However, there is a maximum amount of earnings subject to Social Security tax, which for 2015 is $118,500. Since Elena's earnings are below this limit, the full $19,000 is subject to both parts of the self-employment tax.

Therefore, Elena will owe $2,907 in self-employment tax on her Schedule C net profit. The closest answer choice is D: $3,461, which is not correct.

Question 2

Which of the following statements about partnerships is false?

Accepted Answer

Partnerships may include not only individuals, but also other entities such as corporations or other partnerships.

Question 3

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense:  Waters distributed $25,000 to each of its shareholders during the year. If Mia has no other sources of income, what is her gross income for the year?

Accepted Answer

The answer of Waters Corporation is an S corporation with...

Question 4

Hay, Straw and Clover formed the HSC Partnership, agreeing to share profits and losses equally. Clover will manage the business for which he will receive a guaranteed payment of $30,000 per year. Cash receipts and disbursements for the year were as follows:  What is Clover's share of the partnership's ordinary income and guaranteed payment?

Accepted Answer

The answer of Hay, Straw and Clover formed the HSC...

Question 5

Armond earned $10,000 of profit from a sole proprietorship in 2015. If he also has $120,000 of salary income, how much self-employment tax will he owe?

Accepted Answer

The answer of Armond earned $10,000 of profit from a...

Question 6

Which of the following amounts are not subject to self-employment tax?

Accepted Answer

Limited partners are not actively involved in the management of the partnership, so their share of partnership income is not subject to self-employment tax. A, C, and D are all subject to self-employment tax.

Question 7

During 2015, Scott Howell received a salary of $125,000. The social security base amount for 2015 was $118,500. How much payroll tax should have been withheld from Scott's salary for 2015?

Accepted Answer

The social security tax rate for 2015 was 6.2%. The maximum amount of social security tax a person would pay would be the social security base amount ($118,500) multiplied by the tax rate (6.2%). 
So, the maximum social security tax that Scott would have to pay would be $118,500 x 6.2% = $7,347.
However, because Scott's salary ($125,000) is over the social security base amount, he would have to pay the maximum social security tax of $7,347. 
The Medicare tax rate for 2015 was 1.45% with no maximum income limit. 
So, Scott's Medicare tax would be $125,000 x 1.45% = $1,813.75. 
The total payroll tax withheld from Scott's salary for 2015 would be $7,347 (social security tax) + $1,813.75 (Medicare tax) = $9,160. Therefore, the correct answer is D.

Question 8

During 2015, Margie earned wage income of $300,000. If Margie is single, which of the following statements regarding her Medicare tax liability is true?

Accepted Answer

Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $200,000. This is because the additional .9 percent Medicare tax only applies to individuals with wage income above a certain threshold ($200,000 for single filers).

Question 9

Debbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports $19,000 ordinary business income, $2,000 long-term capital gain, and $830 dividend income. Which of these items are subject to self-employment tax?

Accepted Answer

Limited partners typically do not have to pay self-employment taxes on their share of partnership income. This is because limited partners are not actively involved in the day-to-day operations of the business. Therefore, the ordinary business income, long-term capital gain, and dividend income reported on Debbie's Schedule K-1 are not subject to self-employment tax.

Question 10

Alice is a partner in Axel Partnership. Her share of the partnership's current ordinary business income was $100,000. She received a $60,000 cash distribution from the partnership on December 1. Assuming that Alice's marginal tax rate is 39.6%, calculate her after-tax cash flow from the partnership this year.

Accepted Answer

The answer of Alice is a partner in Axel Partnership....

Question 11

Martha Pim is a general partner in PLF Partnership. This year, Martha received a $48,000 guaranteed payment from PLF, and her distributive share of PLF's ordinary business income was $93,200. Which of the following is accurate?

Accepted Answer

The answer of Martha Pim is a general partner in...

Question 12

William is a member of an LLC. His Schedule K-1 reported a $1,200 share of capital loss and a $3,000 share of Section 1231 gain. William recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 Section 1231 loss on the sale of business equipment. What is the net effect of these gains and losses on William's taxable income?

Accepted Answer

To calculate the net effect on William's taxable income, we combine his personal gains and losses with those reported on Schedule K-1. For capital gains and losses: William's personal capital gain of $4,500 minus his share of capital loss from the LLC of $1,200 equals a net capital gain of $3,300. For Section 1231 gains and losses: William's personal Section 1231 loss of $15,000 plus his share of Section 1231 gain from the LLC of $3,000 equals a net Section 1231 loss of $12,000.

Question 13

Which of the following statements regarding a sole proprietorship is false?

Accepted Answer

The answer of Which of the following statements regarding a...

Question 14

In 2015, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net earnings from self-employment from his small business. Which of the following statements is true?

Accepted Answer

Mike's salary already exceeds the Social Security wage base limit for 2015, so he only owes Medicare tax on his self-employment income.

Question 15

Which of the following statements concerning partnerships is false?

Accepted Answer

A partner is taxed annually on his or her share of the partnership's taxable income, regardless of whether any distributions have been made.

Question 16

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense:  Waters distributed $25,000 to each of its shareholders during the year. Calculate the S corporation's ordinary (non-separately stated) income and indicate which items must be separately stated.

Accepted Answer

The total income of Waters is $147,000 ($65,000 + $27,000 + $55,000). The total expense is $27,000 ($10,000 + $17,000). Therefore, the ordinary income is $120,000 ($147,000 - $27,000). Interest income and long-term capital gain must be separately stated, but salary costs are not separately stated. The distribution of $25,000 to each shareholder is not deductible from the S corporation's income.

Question 17

Waters Corporation is an S corporation with two equal shareholders, Mia Jones and David Kerns. This year, Waters recorded the following items of income and expense:  Waters distributed $25,000 to each of its shareholders during the year. If Mia's adjusted tax basis in her partnership interest was $50,000 at the beginning of the year, compute her adjusted tax basis in her partnership interest at the end of the year.

Accepted Answer

The answer of Waters Corporation is an S corporation with...

Question 18

Kelly received a $60,000 salary during 2015. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2015 was $118,500. What is the total amount that her employer should have withheld in 2015?

Accepted Answer

First, we need to calculate Kelly's Social Security taxes. Social Security tax is calculated as 6.2% of the Social Security base amount ($118,500 in 2015), so Kelly's Social Security tax for 2015 would be:
$118,500 x 0.062 = $7,347
This is the maximum amount of Social Security taxes that Kelly would owe for the year.
Next, we need to calculate Kelly's federal income tax withholding. Her salary was $60,000, and her withholding rate was 20%, so her federal income tax withholding for the year would be:
$60,000 x 0.20 = $12,000
Finally, we add Kelly's Social Security tax and federal income tax withholding together to get the total amount that her employer should have withheld for the year:
$7,347 + $12,000 = $19,347
However, we need to remember that there is a cap on Social Security tax withholding. In 2015, the maximum amount of Social Security tax that could be withheld was $7,347. Since we already calculated that Kelly's Social Security tax would be $7,347, we know that her employer should not have withheld any more than that. Therefore, the total amount that her employer should have withheld for the year is:
$7,347 + $12,000 = $16,347
The closest option to this answer is A, which is $16,590.

Question 19

Sue's 2015 net (take-home) pay was $23,205. Her only payroll deductions were for payroll taxes and federal income tax. Federal income tax withholdings totaled $4,500. What was the amount of her gross wages for the year?

Accepted Answer

Sue's net pay is her gross wages minus payroll deductions. Her net pay was $23,205, and her federal income tax withholding was $4,500. Therefore, her gross wages were $23,205 + $4,500 = $27,705. Since this does not match any of the options, the correct choice is D) None of the above.

Question 20

Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports $50,000 ordinary business income, $22,000 guaranteed payment, $5,000 long-term capital gain, and $400 dividend income. Which of these items are subject to self-employment tax?

Accepted Answer

Only the ordinary business income and the guaranteed payment are subject to self-employment tax for a general partner. Long-term capital gains and dividend income are not subject to self-employment tax.

Quiz 10: Sole Proprietorships, Partnerships, Llcs, and S Corporations

During 2015, Elena generated $24,500 of earnings on Schedule C. If Elena had no other earned income, how much self-employment tax will she owe on her Schedule C net profit?

Which of the following statements about partnerships is false?

Armond earned $10,000 of profit from a sole proprietorship in 2015. If he also has $120,000 of salary income, how much self-employment tax will he owe?

Which of the following amounts are not subject to self-employment tax?

During 2015, Scott Howell received a salary of $125,000. The social security base amount for 2015 was $118,500. How much payroll tax should have been withheld from Scott's salary for 2015?

During 2015, Margie earned wage income of $300,000. If Margie is single, which of the following statements regarding her Medicare tax liability is true?

Debbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports $19,000 ordinary business income, $2,000 long-term capital gain, and $830 dividend income. Which of these items are subject to self-employment tax?

Martha Pim is a general partner in PLF Partnership. This year, Martha received a $48,000 guaranteed payment from PLF, and her distributive share of PLF's ordinary business income was $93,200. Which of the following is accurate?

Which of the following statements regarding a sole proprietorship is false?

In 2015, Mike Elfred received a $165,000 salary from his employer and generated $39,000 net earnings from self-employment from his small business. Which of the following statements is true?

Which of the following statements concerning partnerships is false?

Kelly received a $60,000 salary during 2015. Her federal income tax withholding rate was 20%, and the Social Security base amount for 2015 was $118,500. What is the total amount that her employer should have withheld in 2015?

Sue's 2015 net (take-home) pay was $23,205. Her only payroll deductions were for payroll taxes and federal income tax. Federal income tax withholdings totaled $4,500. What was the amount of her gross wages for the year?

Alan is a general partner in ADK Partnership. His partnership Schedule K-1 reports $50,000 ordinary business income, $22,000 guaranteed payment, $5,000 long-term capital gain, and $400 dividend income. Which of these items are subject to self-employment tax?