Rachel is the sole member of an LLC,and Jordan is the sole shareholder of a C corporation.Both businesses were started in the current year,and each business has a long-term capital gain of $10,000 for the year.Neither business made any distributions during the year.With respect to this information,which of the following statements is correct?
A)The C corporation receives a preferential tax rate on the LTCG of $10,000.
B)The LLC must pay corporate tax on taxable income of $10,000.
C)Jordan must report $10,000 of LTCG on his tax return.
D)Rachel must report $10,000 of LTCG on her tax return.
E)None of the above.

Question

Quizplus · Accepted Answer

LLCs are considered "pass-through" entities for tax purposes, meaning that the business itself is not taxed on the income or gains, but rather the profits or losses flow through to the individual owner's tax returns. Therefore, Rachel would be responsible for reporting the $10,000 LTCG on her personal tax return. On the other hand, C corporations are taxed as separate entities, and therefore the corporation would receive a preferential tax rate on the $10,000 LTCG. Jordan, as the sole shareholder, would not have to report this on his personal tax return unless the corporation distributes a portion of the gains to him as a dividend.

Rachel Is the Sole Member of an LLC,and Jordan Is