Choice of Entity - 25 CPE Credit Hours
This comprehensive book describes and compares sole proprietorships, partnerships, limited liability companies, “C” corporations and “S” corporations. It examines their advantages and disadvantages, permitting the reader to properly select the right business entity for their tax and liability needs. Major emphasis is given the maximization of tax benefits in each business format. Fringe benefits, retirement plan alternatives, and nonqualified deferred compensation are discussed in detail.
Completion Deadline & Exam: This course, including the examination, must be completed within one year of the date of purchase. In addition, unless otherwise indicated, no correct or incorrect feedback for any exam question will be provided.
Course Level: Overview. This program is appropriate for professionals at all organizational levels.
Field of Study: Taxes
Prerequisite: General understanding of federal income taxation.
Advanced Preparation: None
Learning Assignments & Objectives
As a result of studying each assignment, you should be able to meet the objectives listed below each assignment.
Chapter 1 Sole Proprietorship
At the start of Chapter 1, participants should identify the following topics for study:
* Advantages & disadvantages
* Schedule C
* Self-employment tax
* Estimated tax
* Sale of a business
* Classification of assets
* Other business dispositions
* Income splitting
* Estate planning
After reading Chapter 1, participants will be able to:
1. List the advantages and disadvantages associated with sole proprietorships, and state the formation requirements so that start-up expenses and withdrawals are dealt with properly.
2. Identify not-for-profit activities particularly how they relate to Schedule C businesses and name the various requirements permitting such businesses to complete the C-EZ form or request an automatic filing extension.
3. Recognize the taxes imposed on self-employed persons noting compliance with payment requirements and show how sole proprietorship assets are characterized on disposition. Identifying the income splitting and estate planning devices available for such business owners and their impact on entity choice.
After studying the materials in Chapter 1, answer the exam questions 1 to 14.
Chapter 2 Partnerships
At the start of Chapter 2, participants should identify the following topics for study:
* Definition of partnership
* Partners taxed as individuals
* Partnership tax return
* Year taxable
* Transactions between partner & partnership
* Contributions of property
* Inside basis of contributed assets
* Basis of partner’s interest – outside basis
* Sales & exchanges of partnership interests
* Partnership distributions
After reading Chapter 2, participants will be able to:
1. Define partnerships under §761(a) including the status of joint ventures, cotenancy, publicly traded partnerships, and the special benefits of family partnerships listing several advantages and disadvantages of each and identifying how partners share tax items.
2. Outline the taxation of partners and partnerships and its affect on the preparation of individual returns and K‑1s. Then, for those wishing to avoid such partnership treatment, identify the exclusion requirements showing tax rate and §1031 exchange impact.
3. Name at least four separately stated items showing the relationship of deductions to outside basis, partnership versus partner deductions, allocation of deductions, and related filing requirements to improve accurate tax reporting.
4. Identify the closing of a partnership year, the events that terminate a partnership and the events that do not close the year to insure proper tax allocation.
5. List two types of transactions between a partner and the partnership that can influence the treatment of the transaction, and state the character of property contributions under §721.
6. Define inside and outside basis, including complications caused by the contribution of services, showing their interplay with the at risk & passive rules, their impact on the disposition of partnership interests, and their effect on partnership distributions. Identify how such distributions and liquidations effect gain or loss for partnership and partners.
After studying the materials in Chapter 2, answer the exam questions 15 to 31.
Chapter 3 Limited Liability Companies
At the start of Chapter 3, participants should identify the following topics for study:
* Advantages of LLCs over C corporations
* Advantages of LLCs over S corporations
* Advantages of LLCs over limited partnerships
* Advantages of LLCs over general partnerships
* Federal tax consequences
* Conversion to LLCs from other entities
* Local taxes on conversion
* California Limited Liability Company Act
After reading Chapter 3, participants will be able to:
1. Identify the characteristics of limited liability companies (LLCs) that distinguish them from other entities, particularly C corporations, and list four benefits of an LLC and their effect on choosing a form of entity.
2. State reasons for choosing an LLC over S corporations, limited partnerships, and general partnerships and, in contrast, match these with the drawbacks of LLCs to assist clients in entity selection.
3. Outline several ways to use the LLC form effectively and thereby fit client objectives and expand business-planning opportunities.
4. Recognize the varying tax consequences of forming or converting to an LLC including possible state tax differences using the California Limited Liability Company Act as an example to better identify overall LLC tax issues.
After studying the materials in Chapter 3, answer the exam questions 32 to 46.
Chapter 4 Corporations
At the start of Chapter 4, participants should identify the following topics for study:
* Corporation defined
* PSC corporations
* Small business stock exclusion
* Start-up & organizational expenses
* Alternative minimum tax
* Capital gains & losses
* Accumulated earnings
* Accounting periods & methods
After reading Chapter 4, participants will be able to:
1. Define “corporation,” for tax purposes, differentiating regular corporations from other entities so that entity choice fits business owners’ objectives.
2. Identify “personal service corporations” and small business investment companies, their requirements & tax treatment and when and show how clients can engage or avoid such classification for their benefit.
3. Recognize transfer of money, property or both by prospective shareholders to a corporation and the basic requirements associated with corporate formation under §351.
4. List the requirements of §1244 stock and the small business stock exclusion so that clients can take advantage of these tax benefits, and show the differences between start-up expenses and organizational expenses in order to account for these expenses appropriately.
5. Identify corporate pitfalls and dangers emphasizing tax recognition of the entity, tax rates, AMT computation, capital gains & losses under §1212 and the dividends received deduction under §243.
6. Illustrate corporate operations in making allowable corporate charitable contributions, benefiting from the repeal of §341, and avoiding tax penalties under §541 and §531.
7. List available corporate accounting periods and methods showing the treatment and impact of tax-exempt income, inventory identification & evaluation, multiple corporations, and corporate liquidations and distributions.
After studying the materials in Chapter 4, answer the exam questions 47