The Choice Of Business Entity

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Question 1
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Start-up losses of a new business operation can generate immediate tax savings if the business is operated as a corporation.

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Question 2
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The net operating losses of a C corporation can be carried forward to reduce its taxable income in future tax years.

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Question 3
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Bart owns 100% of an S corporation that had a net operating loss in the current year. If there is sufficient basis in the stock, he will carry this loss back to reduce taxes in a prior S corporation tax year.

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Question 4
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If a business is operated as a passthrough entity, the startup losses of the business may be deducted against the current taxable income of the owner.

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Question 5
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If a new business organized as a C corporation incurs start-up losses, the tax benefits of those losses will be recognized immediately.

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Question 6
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If a business is formed as a regular corporation, the income may be subject to double taxation.

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Question 7
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Typical family-owned businesses are operated as passthrough entities.

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Question 8
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After-tax cash flow is minimized when a business operates as a passthrough entity rather than a taxable corporation.

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Question 9
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Owners of a small business typically minimize tax costs and maximize cash flow by operating as a passthrough entity.

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Question 10
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Following the rate reductions of the Tax Cuts and Jobs Act, it is not possible for after-tax cash flow from a taxable corporation to exceed after-tax cash flow from a passthrough entity.

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Question 11
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After-tax cash flow from a passthrough entity will always exceed after-tax cash flow from a taxable corporation.

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Question 12
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Family partnerships attempt to divide the income of a business among family members in order to decrease the overall tax burden of the family unit.

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Question 13
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A family partnership can shift taxable income to younger family members only if these family members own a partnership interest.

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Question 14
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A family partnership can be used to shift a portion of the income from a capital-intensive manufacturing business to a taxpayer's young children.

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Question 15
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A family partnership can be used to shift a portion of the income from an accounting practice to a taxpayer's young children.

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Question 16
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Family partnerships are generally created when the owner of a business makes a gift of an equity interest in the business to a relative.

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Question 17
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A family partnership can shift taxable income to younger family members without any corresponding shift of cash flow to those family members.

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Question 18
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Transfers of equity interests to family members may result in gift tax liability.

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Question 19
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Both individual general partners and S corporation shareholders must pay self-employment tax on their share of the entity's ordinary business income.

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Question 20
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Limited liability companies (LLCs) provide owners the tax advantages of a passthrough entity and the limited liability protection of corporations.

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