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Found of Taxation
Ch. 10: Sole Proprietorships, Partnerships, LLCs, and S Corporations
| Term | Definition |
|---|---|
| sole proprietorship | an unincorporated business owned by one individual |
| qualified business income (QBI) | active trade or business income from nonservice businesses eligible for the Section 199A deduction |
| QBI deduction | a deduction permitted to noncorporate taxpayers, generally equaling 20 percent of qualified business income. Wage and taxable income limitations may apply to reduce the allowable deduction |
| employer identification number | a number assigned to an employer by the IRS to identify the employer for employment tax purposes |
| employer payroll tax | the FICA tax (Social Security and Medicare tax) levied on employers that pay compensation during the year |
| employee payroll tax | the FICA tax (Social Security and Medicare tax) levied on employees who receive compensation during the year. |
| self-employment tax | employment tax levied on an individual’s net earnings from self-employment. |
| partnership | an unincorporated association of two or more persons to conduct business as co-owners |
| general partnership | a partnership in which all the partners have unlimited personal liability for the debts incurred by the partnership |
| limited partnership | a partnership in which one or more partners are liable for partnership debt only to the extent of their capital contributions to the partnership. Limited partnerships must have at least one general partner |
| limited liability partnership (LLP) | a partnership in which the general partners are not personally liable for malpractice-related claims arising from the professional misconduct of another general partner |
| limited liability company (LLC) | a form of unincorporated business organization in which the members have limited liability for business debt. LLCs are generally treated as partnerships for federal tax purposes |
| passthrough entity | a business entity that is not a taxable entity. The income, gains, deductions, and losses recognized by a passthrough entity are reported by the entity’s owners and taxed only once at the owner level |
| separately state item | an item of income, gain, deduction, or loss recognized by a passthrough entity that retains its character as it flows through to the owners. Separately stated items are not included in the computation of the entity’s ordinary business income or loss |
| distributive share | a partner’s share of any item of income, gain, deduction, loss, or credit recognized by the partnership. Distributive shares are usually expressed as a percentage and specified in the partnership agreement |
| guaranteed payments | a distribution from a partnership to a partner to compensate the partner for ongoing services performed for the partnership |
| subchapter S corporation | a corporation with a subchapter S election in effect. The corporation is a passthrough entity for federal tax purposes and does not pay federal income tax |
| pro rata share | a shareholder’s share of any item of income, gain, deduction, loss, or credit recognized by an S corporation; based on the number of shares of outstanding stock owned by the shareholders |
| statutory base for the SE tax | equals net profit minus a deduction equal to 7.65 percent of such profit. §1402(a)(12). Schedule SE builds this deduction into its computation of net earnings by defining that number as 92.35 percent of Schedule C net profit |
Created by:
ryanriggs18
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