Principles Of Taxation For Business And Investment Planning 2020 Edition
23rd Edition
ISBN: 9781259969546
Author: Sally Jones, Shelley C. Rhoades-Catanach, Sandra R Callaghan
Publisher: McGraw-Hill Education
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Chapter 12, Problem 3QPD
Ms. Johnson is eager to create a family
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Ming and Denise, mother and daughter, operate a local restaurant as an LLC. The MD LLC earned a profit of $200,000 in the current year. Denise’s equal partnership interest was acquired by gift from Ming. Assume that capital is a material income-producing factor and that Ming manages the day-to-day operations of the restaurant without any help from Denise. Reasonable compensation for Ming’s services is $50,000.
How much of the LLC’s income is allocated to Ming?
What is the maximum amount of the LLC’s income that can be allocated to Denise?
Assuming that Denise is 15 years old, has no other income, and is a dependent of Ming, how is Denise’s income from the LLC taxed?
Beth and Bob are married entrepreneurs. Beth has a start-up sole proprietorship in which she works long hours. This year the business generated $500,000 of revenues and $800,000 of deductible business expenses. Bob is a partner in a new partnership, also working long hours. His share of the partnership loss for the year is $275,000. Fortunately, they both have trust funds so they are receiving $700,000 of taxable interest income and dividends in 2021. Due to this year's results, Beth and Bob will have an NOL carryover of
a.
$0.
b.
$575,000.
c.
$325,000.
d.
$51,000.
9. Angela and Thomas are planning to start a new business. Thomas will invest cash in the business but not be
involved in day-to-day operations. Angela plans to work full-time overseeing business operations.
The two currently project that the business will generate $200,000 of annual taxable income before consideration
of any payments to Angela for her services. Both agree that Angela's services are worth $100,000
Angela and Thomas plan to form a passthrough entity but are unsure whether to choose a partnership or an S
corporation. In either case, they will be equal owners of the entity. Given their other sources of income, both
Thomas and Angela have a 37 percent marginal tax rate on ordinary income. (Ignore any payroll or self
employment tax consequences.)
a. If the business is operated as a partnership, calculate ordinary income allocated to each owner, and explain the
treatment by the partnership and by Angela of her $100,000 payment for services.
b. If the business is operated as…
Chapter 12 Solutions
Principles Of Taxation For Business And Investment Planning 2020 Edition
Ch. 12 - Mr. and Mrs. Velotta are self-employed...Ch. 12 - Prob. 2QPDCh. 12 - Ms. Johnson is eager to create a family...Ch. 12 - Discuss the tax and nontax reasons why the stock...Ch. 12 - Mr. Eros operates an antique store located on the...Ch. 12 - Prob. 6QPDCh. 12 - Prob. 7QPDCh. 12 - Prob. 8QPDCh. 12 - Prob. 9QPDCh. 12 - Prob. 10QPD
Ch. 12 - Prob. 11QPDCh. 12 - Ms. Knox recently loaned 20,000 to her closely...Ch. 12 - Explain the logic of the tax rate for both the...Ch. 12 - Prob. 14QPDCh. 12 - Prob. 15QPDCh. 12 - Prob. 16QPDCh. 12 - Mr. Tuck and Ms. Under organized a new business as...Ch. 12 - Grant and Marvin organized a new business as a...Ch. 12 - Prob. 3APCh. 12 - Ms. Kona owns a 10 percent interest in Carlton...Ch. 12 - Mrs. Franklin, who is in the 37 percent tax...Ch. 12 - Prob. 6APCh. 12 - Prob. 7APCh. 12 - Prob. 8APCh. 12 - Prob. 9APCh. 12 - Prob. 10APCh. 12 - Prob. 11APCh. 12 - Prob. 12APCh. 12 - Prob. 13APCh. 12 - Ms. Xie, who is in the 37 percent tax bracket, is...Ch. 12 - Prob. 15APCh. 12 - In 1994, Mr. and Mrs. Adams formed ADC by...Ch. 12 - Prob. 17APCh. 12 - Prob. 18APCh. 12 - Prob. 19APCh. 12 - Prob. 20APCh. 12 - Prob. 21APCh. 12 - Prob. 1IRPCh. 12 - Prob. 2IRPCh. 12 - Prob. 3IRPCh. 12 - REW Inc. is closely held by six members of the REW...Ch. 12 - Prob. 5IRPCh. 12 - Prob. 6IRPCh. 12 - Prob. 7IRPCh. 12 - Prob. 8IRPCh. 12 - Prob. 9IRPCh. 12 - Prob. 10IRPCh. 12 - Prob. 2TPCCh. 12 - Prob. 3TPC
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