A consultant expects to earn $200,000 net profit. They want to minimize Self-Employment (SE) tax. Which entity structure best achieves this goal?

Answer options:

Sole Proprietorship

S Corporation

General Partnership

Single Member LLC

How to approach this question

Compare SE tax exposure. S Corp allows splitting income between Salary (FICA taxed) and Distributions (Not FICA taxed). All others generally subject full active income to SE tax.

Full Answer

B.S Corporation✓ Correct

IRC §1402 vs S Corp rules. S Corp shareholders pay FICA only on wages. Remaining profit distributed is not subject to SE tax. Sole Props and General Partners pay SE tax on all net earnings.

Common mistakes

Thinking LLCs automatically save SE tax (they don't unless taxed as S Corp).

Question 46 All questions Question 48

Practice the full CPA TCP Practice Exam 3

68 questions · hints · full answers · grading

More questions from this exam

Q01In Year 1, an executive is granted 1,000 Incentive Stock Options (ISOs) with an exercise price of...Medium Q02On January 1, Year 1, a corporation lends $500,000 to a shareholder interest-free. The loan is a ...Medium Q03A taxpayer has regular taxable income of $200,000 in Year 1. They claimed a standard deduction of...Medium Q04A U.S. citizen accepts a permanent assignment in France on January 1, Year 1. They are present in...Medium Q05A 12-year-old child has $5,000 of interest income and no earned income in Year 1. Assume the stan...Hard

View all 68 questions →