Table of Contents

Chapter 1 - Choosing the Right Business Entity & Getting Cash Out of It - Section 1 10

The Great Business Entity Tax Divide. 10

Passthrough Entities - 20% Deduction. 10

Limitations. 10

Deduction Amount 11

Qualified Trade Or Business. 11

Corporations - 21% Rate. 11

Sole Proprietorship. 13

Not-For-Profit Activities - '183. 14

Deduction & Loss Limit 14

Profit Presumption - 3/5. 15

Schedule C-EZ.. 15

Self-Employment Tax - SECA.. 15

Estimated Tax. 16

Sale of a Business. 16

Classification of Assets. 16

Income Splitting. 17

Partnerships 18

Definition of Partnership. 18

Section 761(a) 18

Co-tenancies. 18

Partnership Agreement 18

Modifications. 18

Partners Share of Tax Items. 19

Limited Partners. 19

Family Partnerships - '704(e) 19

Advantages. 20

Disadvantages. 20

Partners Taxed as Individuals. 20

Individual Returns & Schedules K-1. 20

Separately Treated Items. 21

Character of Items & Limitations. 22

Deduction of Losses. 22

Outside Basis Limitation - '704(d) 22

Loss Ultimately Deductible. 22

Effect of Losses on Outside Basis - '705. 22

Chapter 1 - Section 1 Review Questions 23

Chapter 1 - Choosing the Right Business Entity & Getting Cash Out of It - Section 2 25

Partnership Tax Return. 25

Filing Requirements. 25

Due Date of Return. 25

Failure to File. 25

Failure to Furnish Copies to Partners. 26

Special Allocations - '704(b) 26

Economic Effect 26

Substantial Effect. 26

Year Taxable - '706(a) 26

Limitation on Choice of Taxable Year 27

Closing of Partnership Year 27

Events That Terminate Partnership - '708(b) 27

Discontinuance of Business. 27

Winding Up. 27

Sale of 50% or More Interest - Repealed. 27

Transactions between Partner & Partnership. 28

Treating Partner as Stranger - '707(a) 28

Guaranteed Payments - '707(c) 28

Certain Losses Disallowed - '707(b) 29

Two Partnerships. 29

Sales at Gain. 29

Contributions of Property - '721. 29

Contribution vs. Sale or Exchange. 29

Disguised Sale - '707(a) 29

Property Distribution to Contributing Partner - '737. 30

Contributed Property Distribution to Another Partner - '704(c) 30

Inside Basis of Contributed Assets - '723. 30

Allocation of Precontribution Gain or Loss - '704(c) 30

Character of Subsequent Gain. 31

Taint On Contribution- '724. 31

Character of Subsequent Loss - '724(c) 31

Contribution of Services. 31

Basis of Partners Interest - Outside Basis. 31

Original Basis - '722. 32

Adjustments to Basis - '705(a) 32

Effect of Liabilities - '752. 32

Sales & Exchanges of Partnership Interests. 33

Hot Assets - '751. 33

Liabilities of Partnership - '752. 33

Basis of Partnership Assets after Transfer of Interest 33

General Rule - '743(a) 33

Special Basis Adjustment - ''743, 754. 33

Partnership Distributions - '731. 34

Exceptions to General Rule. 34

Partnership Liquidations. 34

Types of Liquidating Distributions. 35

Liquidating Distributions of Money - '736. 35

Section 736(a) Payments. 35

Section 736(b) Payments. 35

Chapter 1 - Section 2 Review Questions 37

Chapter 1 - Choosing the Right Business Entity & Getting Cash Out of It - Section 3 38

Limited Liability Companies 38

Introduction. 38

LLC Benefits. 38

Advantages of LLCs over C Corporation. 38

Double Tax. 38

Basis Adjustment 39

Special Allocations. 39

Contributions. 39

Liquidation. 39

Unreasonable Compensation. 39

Non-Tax Benefits. 39

Advantages of LLCs over S Corporations. 40

Advantages of LLCs over Limited Partnerships. 41

Outside Basis & Debt Share Advantage. 41

Substantial Economic Effect Rules - '704(b) 41

Discharge of Indebtedness Income. 42

Advantages of LLCs over General Partnerships. 42

Disadvantages. 42

Corporations 43

Corporation Defined. 43

Corporate Characteristics. 43

Check-the-Box Regulations. 43

C Corporations. 43

Advantages. 44

Disadvantages. 44

PSC Corporations - '441, '448, '469. 44

Testing Period - '441. 44

Personal Services - '441. 45

Principal Activity & Substantial Performance - '441. 45

Employee-Owner - '441. 45

Passive Loss Limitations - '469(a)(2) 45

Qualified Personal Service Corporation - '448. 45

Incorporation - '351. 46

Basic Requirements. 46

Corporate Nonrecognition. 46

Control 47

Property Basis - '362. 47

Stock Basis. 47

Section 1244 Stock. 47

Maximum Ordinary Loss. 48

Original Issuance. 48

Distributed Stock. 48

General Requirements. 48

Start-Up Expenses - '195. 48

Covered Expenses. 49

Amortization. 49

Organizational Expenses - '248. 49

Definition. 50

Stock Issuance & Syndication Expenses. 50

Amortization. 50

Corporate Income Tax Rates. 50

Tax Tables. 51

Current Rate - 21%... 51

Tax Return & Filing. 51

Alternative Minimum Tax Repealed. 51

Capital Gains & Losses - '1212. 51

Net Capital Loss Carryovers. 52

Dividends Received Deduction - '243. 52

Dividends from Domestic Corporations. 52

65% Exception. 52

Chapter 1 - Section 3 Review Questions 53

Chapter 1 - Choosing the Right Business Entity & Getting Cash Out of It - Section 4 54

Charitable Contributions - '170. 54

Limitation. 54

Personal Holding Companies - '541. 54

Penalty Tax. 54

Accumulated Earnings Tax Trap. 55

Computation. 55

Accumulated Earnings Credit 55

Accounting Periods & Methods. 55

Accounting Periods. 56

Accounting Methods. 56

Methods Available. 56

Inventories - '446. 56

Identification Methods. 57

Specific Identification Method. 57

FIFO Method. 57

LIFO Method. 57

Valuation Methods. 58

Cost Method. 58

Uniform Capitalization Rules - '263A.. 58

Lower of Cost or Market Method. 59

Corporate Liquidations & Distributions. 59

Becoming an S Corporation. 62

S Corporation Status. 62

Number of Shareholders. 62

One Class of Stock. 62

Domestic Corporation. 62

Election Requirement 62

Making the Election. 63

Form 2553. 63

S Corporation Termination. 63

Ceasing to Qualify. 63

Passive Income - '1362. 64

Taxation of S Corporations. 64

Built-In Gain - '1374. 64

Taxable Year 65

Fringe Benefits. 65

Chapter 1 - Section 4 Review Questions 66

Answers & Explanations 67

Chapter 1 - Section 1 Review Questions Feedback. 67

Chapter 1 - Section 2 Review Questions Feedback. 70

Chapter 1 - Section 3 Review Questions Feedback. 73

Chapter 1 - Section 4 Review Questions Feedback. 76

Glossary. 79

Index of Keywords & Phrases 81

CPE Exam Answer Sheet 84

Final Examination. 85

CPASelfstudy.com Course Evaluation. 90