Business Taxation
Chapter Exam Questions
Course Introduction
Business Taxation is a comprehensive course that examines the principles, laws, and practices related to the taxation of businesses. It covers the various types of taxes that impact businesses, including income tax, value-added tax (VAT), and withholding taxes. Students learn how taxation affects business decisions, financial planning, and compliance requirements. The course also delves into tax planning strategies, the preparation of tax returns, and the analysis of current regulations and policies. Emphasis is placed on ethical considerations, legal responsibilities, and the role of taxation in the broader economic environment. Through case studies and practical exercises, students gain the knowledge necessary to navigate complex tax issues encountered by businesses.
Recommended Textbook Fundamentals of Taxation 2017 Edition 10th Edition by Ana Cruz
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Page 2
Chapter 1: Introduction to Taxation, the Income Tax
Formula,
and Form 1040ez
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Q1) Tax liability is calculated using taxable income.Permitted deductions are then subtracted from the tax liability.
A)True
B)False
Answer: False
Q2) The tax rate is applied against the tax base to determine the amount of tax liability.
A)True
B)False
Answer: True
Q3) Which of the following trial courts hear tax cases?
A)U)S.Court of Federal Claims.
B)U)S.Tax Court.
C)U)S.District Court.
D)All of these.
Answer: D
Q4) What is a Private Letter Ruling PLR)? What tax authority is provided by a PLR?
Answer: The IRS issues a PLR when a taxpayer requests a ruling on a certain tax situation.The PLR is tax authority only to the taxpayer to whom it is issued.
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Chapter 2: Expanded Tax Formula, forms 1040a and 1040, and Basic Concepts
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Q1) The IRS can assess criminal penalties if fraud is found on a tax return.Name and describe at least two of those criminal penalties.
Answer: 1.Any person who willfully attempts to evade or defeat any tax.The charge is a felony punishable by fines of not more than $100,000 or imprisonment of not more than five years or both. 2.Any person who fails to collect,account for,and pay over any tax.The charge is a felony punishable by fines of not more than $10,000 or imprisonment of not more than five years or both. 3.Any person who willfully fails to pay estimated tax or other tax or file a return.The charge is a misdemeanor punishable by fines of not more than $25,000 or imprisonment of not more than one year or both.
Q2) A single taxpayer is 35 years old and has only wages of $16,000.Which is the simplest form this person can file?
A)1040A.
B)1040EZ.
C)1040.
D)1040ES.
Answer: B
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Page 4
Chapter 3: Gross Income: Inclusions and Exclusions
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Q1) A taxpayer does not have to report part of an original issue discount OID)as income every year.
A)True
B)False
Answer: False
Q2) The amount of savings bond interest exempt from tax is phased out completely when an individual is married and his or her modified AGI reaches:
A)$116,300.
B)$92,550.
C)$115,750.
D)$146,300.
Answer: D
Q3) Working condition fringes include:
A)Bonus earned by the employee.
B)The use of an employer-provided vehicle for business purposes.
C)Professional organization dues paid by the employer.
D)Professional organization dues paid by the employer and the use of an employer-provided vehicle for business purposes.
Answer: D
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Chapter 4: Adjustments for Adjusted Gross Income
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Q1) What is the key limitation related to income associated with deductibility of student loan interest?
Q2) An early withdrawal penalty is reported on Form:
A)1099-DIV.
B)1098.
C)W-2.
D)1099-INT.
Q3) If a divorce agreement executed in 2016 specifies that a portion of the amount of an alimony payment is contingent upon the age or status of a child,that portion is considered to be a child support payment.
A)True
B)False
Q4) The qualified tuition and fees deduction is $4,000 for all eligible taxpayers. A)True
B)False
Q5) Is the self-employed health insurance deduction available to individuals other than self-employed taxpayers? If so,to whom is it available?
Q6) What is an "eligible educational institution" as it relates to the deductibility of student loan interest?
6
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Chapter 5: Itemized Deductions
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Q1) Which of the following items would be an itemized deduction on Schedule A of Form 1040 subject to the 2% of AGI floor?
A)Professional dues to membership organizations.
B)Job-hunting costs.
C)Work uniforms that cannot be used for normal wear.
D)All of these.
Q2) Explain the change in the tax treatment regarding the limitation of itemized deductions for high-income taxpayers.
Q3) Sonia's car was completely destroyed in an accident that was her fault.Her loss was $8,500 and her insurance company reimbursed her $6,500.What amount of casualty loss can Sonia claim on her return before deduction limitations)?
A)$6,500
B)$2,000
C)$8,500
D)$0
Q4) Explain the key exception to the general rule concerning the charitable deduction for the contribution of tangible personal property.
Q5) Donations to what types of organizations are tax deductible?
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Chapter 6: Self-Employed Business Income Line 12 of Form
1040 and Schedule C
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Q1) Della purchased a warehouse on February 25,2016,for $350,000.$45,000 of the price was for the land.What is her cost recovery deduction for 2016 rounded to the nearest dollar?
A)$7,865.
B)$11,137.
C)$9,705.
D)$6,853.
Q2) The standard mileage rate includes parking fees,tolls,and property taxes on the vehicle.
A)True
B)False
Q3) Beau earned $25,000 of net earnings from a tax preparation business that he runs during tax season.He also earned a salary of $100,000 from his full-time job.How much self-employment tax must he pay for 2016? Round calculations to the nearest dollar)
Q4) If property is inherited,the property's basis for purposes of depreciation is the same as the decedent's basis.
A)True
B)False
Q5) List and define the criteria for an expenditure to be deductible on Schedule C.
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Chapter 7: Capital Gains and Other Sales of Property
Schedule D and Form 4797
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Q1) If Section 1231 losses exceed Section 1231 gains,the excess is treated as an ordinary loss.
A)True
B)False
Q2) To qualify as Section 1231 property,the property must be used in a taxpayer's trade or business and must be held for more than one year.
A)True
B)False
Q3) A taxpayer who receives only one form 1099-B from the sales of stock can enter the transaction directly to Schedule D.
A)True
B)False
Q4) Ordinary gains or losses produced outside the normal course of business relate to the sale of business property held less than one year and do not include the sale of accounts receivable.
A)True
B)False
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Chapter 8: Rental Property, royalties, and Income From
Flow-Through Entities Line 17, form 1040, and Schedule E
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Q1) Charles and Sarah own a home in Palm Springs,CA.During the year,they rented the house for 40 days for $5,000 and used it for personal use for 18 days.The house remained vacant for the remainder of the year.The expenses for the house included $16,000 in mortgage interest,$4,500 in property taxes,$1,000 in utilities,$1,200 in maintenance,and $9,800 in depreciation.What is the deductible loss for the rental of their home without considering the passive loss limitation)? Use the Tax Court method for allocation of expenses.
A)$17,414 net loss
B)$5,000 net income
C)$0
D)$27,500 net loss
Q2) Alexis's cabin in the mountains that was rented for 125 days and used by her for 12 days is considered personal/rental property.
A)True
B)False
Q3) A royalty is a payment for the right to use intangible property.
A)True
B)False
Q4) Explain what is considered personal use of a rental property.
Page 10
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Chapter 9: Tax Credits Form 1040, lines 46 Through 54 and Lines 66a Through 73
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Q1) Patricia is single and her son Quinn is age 11.If her AGI is $77,000,what amount of child tax credit can she claim?
A)$900.
B)$1,000.
C)$0.
D)$400.
Q2) Which of the following is a refundable credit?
A)Lifetime learning credit.
B)Child and dependent care expenses credit.
C)Earned income credit EIC).
D)Foreign tax credit FTC).
Q3) Which of the following statements is not true with regard to the child and dependent care expense credit?
A)A non-working spouse attending school full-time is deemed to have earned income of $250 per month for one qualifying person.
B)Married taxpayers must file joint returns.
C)The maximum amount of expenses for two or more dependents is $6,000.
D)The maximum amount of expenses for one dependent is $3,000.
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Chapter 10: Payroll Taxes
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Q1) New employers are always considered to be monthly schedule depositors regardless of the amount of their federal tax liability during their first year.
A)True
B)False
Q2) Goshen works part-time for PCN,Inc.and earned $6,400.He also works part-time for QDO Inc.,and earned $7,300 for 2016.How much FUTA tax are his employers required to remit to the IRS? Assume the employer receives the maximum credit for state unemployment taxes and Goshen started on September 1,2016.
A)$83.08.
B)$80.40.
C)$42.00.
D)$107.20.
Q3) Generally,an employer must withhold 28% of certain taxable payments if the payee fails to furnish the employer with a correct taxpayer identification number.
A)True
B)False
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Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities
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Q1) SIMPLE and SEP plans are subject to the same nondiscrimination rules that apply to other retirement plans.
A)True
B)False
Q2) Harriett is age 52,married,and reported AGI of $102,000 in tax year 2016.She is an active participant in her employer's pension plan.What is the maximum deductible IRA contribution she can make for her own account in 2016?
A)$5,200.
B)$6,500.
C)$4,400.
D)Some other number.
Q3) The expected return on an annuity contract that will last for a specified amount of time is determined with reference to the life expectancy tables published by the IRS.
A)True
B)False
Q4) In the case of defined-contribution plans,in 2016 what are the maximum contribution limits by an employee under the age of 50 to a qualified pension plan,a 401k)plan,a Keogh plan,SEP,and SIMPLE plan?
Page 13
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Chapter 12: Special Property Transactions
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Q1) On July 1,2016,DJ sold equipment used in her business and reported the gain using the installment method.Her adjusted basis in the equipment was $150,000.The equipment was subject to $30,000 of depreciation recapture.DJ sold the property for $250,000,with $100,000 due on the date of the sale and $150,000 plus interest at the Federal rate)due on August 1,2017.What is the amount of gain recognized in 2016?
Q2) Gain realized on a like-kind exchange is excluded from income in all of the following circumstances except:
A)When a liability is assumed.
B)When boot is received.
C)When boot is given.
D)Both when boot is received and when a liability is assumed.
Q3) The adjusted basis of property received in a like-kind exchange can be calculated by taking the FMV of the property received less the gain postponed plus loss postponed).
A)True
B)False
Q4) A dealer of equipment can recognize gains using the installment method.
A)True
B)False
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Page 14
Chapter 13: At-Riskpassive Activity Loss Rules and the
Individual Alternative Minimum Tax
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Q1) The passive activity loss rules require income/loss items to be separated into two categories: active income/loss and passive income/loss.
A)True
B)False
Q2) AMT depreciation of personal property is calculated using which method?
A)Sum-of-the-years digits method.
B)Straight-line method.
C)200% declining balance method.
D)150% declining balance method.
Q3) If a limited partner materially participates in the trade or business of a limited partnership,the passive loss rules still apply.
A)True
B)False
Q4) Adjustments to AMTI can be either positive or negative.
A)True
B)False
Q5) Tax preference items can be either positive or negative.
A)True
B)False
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Chapter 14: Partnership Taxation
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Q1) A guaranteed payment is treated as:
A)An ordinary expense.
B)Both a separately stated item and an ordinary expense.
C)A separately stated item.
D)None of these.
Q2) The sale of a partnership interest is similar to the sale of any capital asset and is reported by the partner on Schedule D of his or her individual tax return.
A)True
B)False
Q3) Sabrina has a $12,000 basis in her S&B partnership interest.Sabrina receives a current cash distribution of $10,000 and equipment with a $5,000 basis FMV $6,000).What is Sabrina's recognized gain or loss?
A)$4,000.
B)$0.
C)$3,000.
D)$16,000.
Q4) Ordinary income from a partnership is not considered self-employment income.
A)True B)False
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Chapter 15: Corporate Taxation
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Q1) If a corporation has a net capital loss,the loss is carried forward indefinitely.
A)True
B)False
Q2) A C corporation has a fiscal year-end of November 30.It does not request an extension of time to file its income tax return.It must file its return no later than the 15<sup>th</sup><sup> </sup>day of:
A)January.
B)February.
C)March.
D)April.
Q3) The corporate alternative minimum tax exemption amount is $150,000.
A)True
B)False
Q4) To legally operate as a corporation in most states,the incorporators must simply file a corporate federal income tax return.
A)True
B)False
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