1. Employment taxes apply to all entity forms of operating a business. As a result, employment taxes are a neutral factor in selecting the most effective form of operating a business.

a. true.

b. false.

2. Marissa is the sole shareholder of the Menlo Corporation, a regular C Corporation. Marissa is in a 35% marginal tax rate. Marissa receives $175,000 from Menlo. In general, Marissa would prefer to have the payment treated as salary instead of a dividend.

a. true.

b. false.

3. Angie is the sole shareholder of a C Corporation. Margie is the sole shareholder of an S Corporation. Both corporations make a net profit of $100,000. Neither corporation distributes any funds to its shareholders. For the current year, Angie is not required to report any income from her corporation on her individual tax return but Margie is required to report $100,000 on her individual tax return.

a. true.

b. false.

4. The Maximum Partnership has a net profit of $80,000 in the current year. Maximum distributes $30,000 to each of its two partners. Maximum must pay tax on the $20,000 of undistributed net profit.

a. true.

b. false.

5. Margo, who is married to Jake, has $200,000 of QBI from her toy store, which she operates as a sole proprietorship. The proprietorship paid $30,000 in W-2 wages and has $20,000 of qualified property. Jake is employed as a bank teller, and he earned $50,000 in salary. The couple’s taxable income (and modified taxable income) was $270,000. What is the couple’s QBI deduction for 2020?

a. zero.

b. $40,000.

c. $50,000.

d. $54,000.

6. Dustin, who is single, generates sole proprietorship income of $340,000 from his financial services practice. He does not have any employees or qualified assets. Which of the following is correct?

a. Dustin is not entitled to a QBI deduction.

b. Dustin is entitled to a partial QBI deduction.

c. Dustin is entitled to a QBI deduction of $68,000.

d. None of the above statements are correct.

7. Marcia, a single taxpayer, has taxable income before the QBI deduction of $193,300. Marcia operates her law practice as a sole proprietorship. During 2020, the proprietorship reports net income of $150,000, W-2 wages of $125,000 and $10,000 of qualified property. What is Marcia’s qualified business income deduction?

a. $39,400.

b. $30,000.

c. $5,000.

d. $25,000.

e. $12,000.

8. Ben and Katie are entitled to a QBI deduction of $85,000. In addition, the couple will take the standard deduction for 2020. In this case,

a. Ben and Katie are not allowed to take any QBI deduction because they are not itemizing.

b. Ben and Katie will take the QBI deduction as a “FOR AGI” deduction.

c. Ben and Katie will take the QBI deduction as a “FROM AGI” deduction.

d. Ben and Katie will not be allowed to the full QBI deduction because they are not itemizing, but will be allowed a partial QBI deduction on Schedule A.

9. Simmons Hot Tub Company has annual revenues of $10 million. $9.5 million of this relates to the sale of hot tubs; the remaining $.5 million relates to installation services. In this case, Simmons will be considered a “specified services” business.

a. true.

b. false.

10. Sonya is starting a business and expects to generate significant losses in the first few years. Based on this information, a regular C Corporation would be the best form for her to choose.

a. true.

b. false.