Jerry and Matt Decide to Form a Business

question 74

Multiple Choice

Jerry and Matt decide to form a business.Jerry will contribute $4,200 for a 35% interest and Matt will contribute $7,800 for a 65% interest.The business will take out a $25,000 loan to cover the balance of their working capital needs.They expect that the business will have a loss of $38,000 for the first year.In the second year,the business will have a profit of $52,000 and it will distribute $5,200 to Matt and $2,800 to Jerry.Jerry is in the 33% marginal tax bracket and Matt is in the 28% marginal tax bracket.Their marginal tax brackets will not change as a result of profit or loss from this business.How much tax will Jerry pay in the second year (rounded to the nearest dollar) due to this business if they organize the business as a partnership?

• A)$6,930
• B)$6,006
• C)$5,891
• D)$3,927
• E)$3,003

Analyze the dividends received deduction (DRD) and its application to different levels of ownership in another corporation.

Understand the procedure and effects of calculating taxable income for a corporation.

Comprehend the process and implications of voluntarily revoking Subchapter S election.

Identify and calculate ordinary income/loss and separately stated items for a Subchapter S corporation.

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Definitions:

Trust

The belief in the reliability, truth, ability, or strength of someone or something, often considered foundational in social and personal relationships.

Infancy

A developmental period in humans from birth to about 18 months of age, characterized by rapid physical and cognitive growth.

Adolescence

The transitional phase of growth and development between childhood and adulthood, characterized by physical, psychological, and social changes.

Postconventional Morality

A level of moral reasoning in Kohlberg's theory that is based on self-chosen ethical principles.