ExpertMedium1 markMultiple Choice
CPA · Question 47 · Area III: Entity Tax Planning
An entrepreneur plans to form a business that will incur losses for the first 3 years. They want to deduct these losses against their other active income. They also want limited liability. Which entity structure is most appropriate?
An entrepreneur plans to form a business that will incur losses for the first 3 years. They want to deduct these losses against their other active income. They also want limited liability. Which entity structure is most appropriate?
Answer options:
A.
C Corporation
B.
S Corporation
C.
Limited Partnership (as Limited Partner)
D.
Sole Proprietorship
How to approach this question
Match requirements: Flow-through losses + Limited Liability = S Corp or LLC (taxed as partnership).
Full Answer
B.S Corporation✓ Correct
S Corporation allows losses to flow through to the shareholder (deductible if material participation and basis exist) and provides limited liability protection.
Common mistakes
Choosing LP (passive loss issues) or Sole Prop (liability issues).
Practice the full CPA TCP Practice Exam 4
68 questions · hints · full answers · grading
More questions from this exam
Q01In Year 1, an executive exercises Incentive Stock Options (ISOs) to purchase 1,000 shares of comp...MediumQ02A taxpayer provides an interest-free loan of $200,000 to their adult child on January 1, Year 1, ...HardQ03A taxpayer, age 15, has $4,500 of interest income and no earned income in Year 1. The taxpayer is...MediumQ04A taxpayer anticipates their marginal tax rate will increase from 24% in Year 1 to 35% in Year 2....MediumQ05A taxpayer is subject to the safe harbor rules for estimated tax payments. Their Year 1 Adjusted ...Medium