Tax and Research

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Individual Tax Research and Planning
Midterm

Chapter 1
20. Discuss what is meant by the term “double taxation” of corporations. Develop an example of double taxation using a corporation and shareholder.
The term “double taxation” refers to the taxing of the same income twice. This type of taxation typically results from a C corporation paying tax on its taxable income and shareholders paying income tax on any dividends received from the C Corporation. The impact of double taxation of C corporations has been substantially reduced by the fact that since 2003, dividends are taxed at a maximum rate of 15%. The most well-known example of double taxation in the U.S. is the income tax levied once on corporate income and then again when profits are distributed as dividends to shareholders.  21. Limited liability companies (LLCs) are very popular today as a form of organization. Assume a client asks you to explain what this type of organization is all about. Prepare a brief description of the federal income tax aspects of LLCs.

A Limited Liability Company or LLC is a legal form of business organization with daily activities like a partnership but with limited liability similar to a corporation. An LLC is formed in the state in which it operates. An LLC is formed by filing Articles of Organization with the state in which you will be doing business. Limited liability companies (LLCs) are generally taxed as partnerships. Therefore, the LLC is not subject to income tax on its taxable income but such income is allocated to the members (owners) of the LLC.. 23. Partnerships and S corporations are flow-through entities. In connection with filing annual tax returns, these entities must include Form K-1 in the returns. What is Form K-1, what is its purpose, and who receives the form?

Form K-1 is an integral part of the annual partnership tax return. It reports a partner’s allocable share of partnership ordinary income and separately-stated items, such as dividends, long-term capital gains, etc. The K-1 is prepared for each partner in the partnership and is filled with Form 1065(annual Partnership tax return). If a partnership has ten partners, there will be a K-1 for each. A copy of each partner’s K-1 is provided to them so that they can report the information on their own tax returns. Chapter 2

4. List the conditions that must be met in order to claim a dependency exemption for qualifying children and relatives. Briefly explain each one.
(1) Identification number- all dependents must have social security numbers reported on the taxpayer’s return, (2) Citizenship - dependents must meet a citizenship test(dependents must be U. S. citizens or nationals, or residents of the U. S., Canada, or Mexico for some part of the year), (3) Married dependents cannot normally file a joint return but they are entitled to the exemption if they file solely to claim a refund of tax withheld , and (4) No dependent – dependents who file a tax return cannot claim personal or dependency exemptions on their returns. Additional requirements for Qualifying children are (1) Relationship test – eligible children must be the taxpayer’s child (including natural, adopted, foster, and stepchildren) or sibling (including half-siblings and step-siblings), (2) Age test – a qualifying child must be under 19, a full-time student under 24, or permanently and totally disabled, (3) Abode test – a qualifying child must have the same principal abode as the taxpayer for more than half of the year, and (4) Support test – a qualifying child may not be self-supporting for more than one-half of his or her own support during the year. Requirements for Other dependents – (1) Relationship test –other relatives must be related to the taxpayer or reside in the taxpayer’s household for the entire year, (2) Gross income test – the dependent must have gross income less than the amount of the...
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