Reference no: EM13589965

Can a sole proprietorship be described as a passthrough entity?This year, Firm Q, a cash basis taxpayer, remitted $26,800 of FICA payroll tax to the federal government. However, the firm deducted only $13,400 FICA tax on its income tax return. Can you explain this apparent inconsistency?Why is only one half of a sole proprietor's self-employment tax generally deductible in the computation of taxable income?

Mrs. G, Mr. Y, and Mrs. N want to become co-owners of a business enterprise. Compare the extent of their personal liability for the debts incurred by the enterprise if they organize as:

a) A general partnership

b) A limited partnership

c) An LLC

d) An S corporation

Why are certain items of income, gain, deduction, or loss separately stated on a partnership or an S corporation tax return?

Four years ago, Mr. JB purchased 1,000 shares of UPF Inc., for $10,000. These shares represent a 30 percent equity interest in UPF, which is an S corporation. This year, UPF defaulted on a $120,000 debt to a major creditor.

a) To what extent can the creditor demand repayment of the debt from Mr. JB?

b) Would your answer change if UPF is a partnership in which Mr. JB is a 30 percent general partner?

c) Would your answer change if UPF is a partnership in which Mr. JB is a 30 percent limited partner?

d) Would your answer change if UPF is an LLC in which Mr. JB is a 30 percent member?