Sam and Betty, Each Single, Each Generate Sole Proprietor Income

question 12

Multiple Choice

Sam and Betty, each single, each generate sole proprietor income of $240,000. Sam's income is generated from a wholesale business while Betty's is earned from her law practice. Neither has any employees or qualified assets. Both claim the standard deduction and have other income equal to the standard deduction amount.

• A) Both Sam and Betty will have a QBI deduction of $48,000.
• B) Sam can obtain a QBI deduction, but Betty cannot because of the taxable income level and law practice is a specified service business.
• C) Neither Sam nor Betty will generate a QBI deduction due to their taxable income levels.
• D) None of the above.

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Definitions:

Unlevered Firms

Businesses that function without incorporating debt or borrowed funds into their financing strategies.

Financial Risk

The possibility of losing money on investments or business operations due to financial market volatility, interest rate changes, or poor financial management.

Financial Policy

Financial policy refers to the strategies that a company employs to manage its finances, including decisions on investments, capital structure, dividends, and working capital management.

Accumulated Tax Losses

Accumulated tax losses refer to net losses that a business can carry forward to future tax years, to offset taxable income and reduce tax liabilities.