1. What is a "pass-through" entity?
a. All profits/losses are passed on to the owner's personal tax return
b. The owner is not subject to self-employment tax.
c. All of the above
2. Which of the following is/are "pass-through" entity(s)?
b. S-elected C-Corporation (S-Corp)
c. Limited Liability Company (LLC)
d. S-elected Limited Liability Company (S-LLC)
f. b & d only
3. Which entity is the easiest to operate due to fewer regulations, documents and mandatory procedures?
c. Limited Liability Company
d. S & C Corporations and LLC's all have the same requirements
4. What is self-employment tax?
a. A 5.3% tax on net income on businesses with a passive owner.
b. A 15.3% tax on net income for sole proprietors & LLCs' for Social Security and Medicare.
c. A 15.3% tax on a shareholder's personal salary in a C-Corp.
d. A 5.3% tax on a shareholder's personal salary in an S-Corp.
5. Vince sells vacuums door-to-door from May until August as a 1099 Sales Rep for Vacuums Inc. If Vince makes $30,000 in commissions over the summer, how much is Vacuum Inc. required to pay towards the 15.3% tax on his wages for Social Security and Medicare?
a. $0, They don't have to pay any of it.
b. $2,295; Half of the total tax (7.65%).
c. $4,590; They are required to pay the total tax
d. 1099 contractors are not subject to Social Security and Medicare taxes
6. Bob is a real estate agent in Utah working as a 1099 contractor/sole proprietor for Whoever Homes/Broker Inc. In 2009, Bob earned $80,000 in commissions. How much will Bob pay in self-employment tax on his commissions?
a. $0; 1099 don't pay self-employment tax.
b. Under $5,000
c. Between $5,000-$10,000
d. Between $10,000-$15,000
e. Over $15,000
7. Bob, from Question #6, sets up an LLC in March 2010 and files IRS form 2553 for tax treatment as an S-Corp. Bob makes $80,000 in 2010. As an S-elected LLC he is required to pay FICA taxes on a "fair and reasonable salary." If Bob selects a salary of 33.33% of his net income, what is the difference between the self-employment tax he would have paid to the FICA taxes he will now pay?
a. They are the same
b. Approx. $1,000
c. Approx. $5,000
c. Approx. $7,000