P2-U01 · PART 2 · SOURCE CYCLE 2026-2027
Business Entities and Requirements
How to complete this unit
This unit uses 22 source-gated recall cards and 22 admissible practice questions. Complete the sequence in order; the unreleased wiki prose remains outside the learner path.
- 1 · LearnBuild the rule
Answer each recall prompt before opening it. Then learn the exact rule, test the controlling facts through four quick challenges, explore common questions, and finish with one own-words teach-back.
- 2 · ApplyUse it in context
Complete at least 20 mapped questions over two sessions. Review the explanation even when the answer is correct.
- 3 · ProveTest readiness
Use the Part 2 mock under time pressure. Return here for every flagged or missed concept before the next attempt.
Verified recall questions
Only cards whose complete question and answer were checked against exact primary-authority evidence appear here. Stable unit ownership gathers this lesson across 1 textbook collection.
Q1.Alder, a sole proprietor, has $425 of net self-employment earnings. What is generally required?
Pay SE tax and file Schedule SE
Q2.Alder, a sole proprietor, expects to owe $1,200 including SE tax. What is generally required?
Make estimated tax payments
Q3.What is the general SE tax rate on Alder’s net earnings for the covered year?
15.3%
Q4.When must a sole proprietor obtain an EIN for federal tax identification?
When the proprietor pays wages to employees or files pension or excise tax returns
Q5.What is the default federal income-tax classification of an individually owned domestic single-member LLC?
Sole proprietorship unless corporate treatment is elected
Q6.Which of the following entities can be treated as "disregarded entities?"
Single member LLC
Q7.At what net earnings threshold is a self-employed individual required to pay self-employment tax?
400
Q8.Willard is the single owner of an LLC that provides party planning services. Absent any elections, how will Willard’s LLC be treated for federal tax purposes?
Disregarded entity
Q9.Ethel owns a single-member LLC that holds a residential rental property. She is not a real estate professional and has not made an election for her LLC to be taxed as a corporation. How should she report the income from her LLC?
Schedule E, Form 1040.
Q10.Future Capital, Inc. is a C corporation. Which of the following business activities would automatically classify this corporation as a PSC, or a "Personal Services Corporation"?
Engineering
Q11.An individual who owns a business that fails to pay required payroll taxes to the IRS may be subject to:
Trust fund recovery penalty.
Q12.Jianguo is self-employed and has a home-based business selling used video games and comic books online. He has a profit motive in his activity. His gross sales were $29,000 for the year, and his expenses total $9,500. Which schedule should Jianguo complete to report his income and expenses?
Schedule C.
Q13.Which of the following is considered a drawback of a C corporation?
Its profits are potentially subject to double taxation.
Q14.Federal law requires businesses to provide a Form 1099-NEC for each independent contractor paid at least ____ for services in 2025.
$600
Q15.All of the statements are correct about the following business entities except:
S corporations may have an unlimited number of shareholders.
Q16.Ellsworth is a full-time life insurance salesman and a statutory employee. He receives a Form W-2 for his earnings. How should he report his income?
On Schedule C, not subject to self-employment tax.
Q17.Hongwei is a sole proprietor with no employees. Hongwei uses his Social Security number to run his business and also to file information returns. In which scenario would he be required to obtain an EIN for his sole proprietorship?
If he is required to file excise tax returns.
Q18.Which of the following entities generally does not require an EIN?
A sole proprietorship with no employees.
Q19.The IRS evaluates all of the following characteristics to assess the relationship between a business and its workers except:
Income level.
Q20.Sunset Funeral Services, Inc. provides burial and funerary services to its customers. Thomas recently paid $12,000 in cash to Sunset Funeral Services for payment of a burial insurance policy. What form is Sunset Funeral Services required to file for this transaction?
Form 8300
Q21.In which of the following instances is a partnership not required to obtain a new EIN?
The partnership adds additional business locations.
Q22.How is a limited liability company (LLC) formed?
Under state law by filing articles of organization.
Ready to move on?
- ▸ Explain at least 80% of these 22 rules without opening the answer, twice on different days.
- ▸ Score 80% across 20 or more mapped questions over two sessions, not one memorized round.
- ▸ Complete a timed Part 2 mock and return to this unit if its concepts remain flagged or missed.
Use these checks to choose your next study action. They do not predict a PSI scaled score.