These questions are Ture/False 1. Olgas proprietorship earned a net profit of $95,000 during the year and she withdrew $70,000 of this profit. Olga must report $70,000 net income from the proprietorship on her individual income tax return. 2. Herman and Henry are equal members in Badger Enterprises, a calendar year limited liability company (LLC). During the year, Badger Enterprises had $305,000 gross income and $230,000 operating expenses. Badger made no distributions to the partners. Badger must pay tax on $75,000 of income. 3. Quail Corporation is a C corporation with net income of $300,000 during 2010. If Quail paid dividends of $50,000 to its shareholders, the corporation must pay tax on $300,000 of net income. Shareholders must also report the $50,000 of dividends as income. 4. In tax planning, the average tax rate is more important than the marginal tax rate. 5. For a taxpayer in the 35% marginal tax bracket, a $100 tax CREDIT saves the taxpayer $100 of tax liability, whereas a $100 tax DEDUCTION saves the $35 of tax liability. 6. As a general rule, capital gains are preferable to ordinary income. Bottom of Form 7. As a general rule, capital losses are preferable to ordinary losses. 8. The tax terms "exclusion" and "deduction" have the same meaning 9. A 6% corporate bond is always a better investment than a 4.5% municipal bond. 10. Assuming constant tax rates (and good tax planning), taxpayers should postpone income recognition and accelerate deduction recognition. 11. Custard Corporation reports a $500,000 taxable income from its operations. In addition, Custard has a $50,000 lont-term capital gain from the sale of the investment. Custard will pay a maximum of $7,500 in taxes on the long-term capital gain ( i.e., $50,000*15%)