Business Taxation
Study Guide Questions
Course Introduction
Business Taxation explores the principles, laws, and practices governing the taxation of business entities, including corporations, partnerships, and sole proprietorships. The course covers topics such as tax compliance, taxable income computation, deductions, credits, and the administration of tax laws relevant to businesses. Students will gain an understanding of the impact of various taxes such as income tax, value-added tax, and withholding taxes on business decisions and operations. Emphasis is placed on tax planning strategies, ethical considerations, and the current regulatory environment to equip students with practical skills for effective tax management in a business context.
Recommended Textbook
Concepts in Federal Taxation 2017 24th Edition by
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16 Chapters
2073 Verified Questions
2073 Flashcards
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Kevin E. Murphy
Chapter 1: Federal Income Taxation-An Overview
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Sample Questions
Q1) The tax rate that will apply to the next dollar of taxable income.
A)Average tax rate
B)Effective tax rate
C)Horizontal equity
D)Marginal tax rate
E)Progressive rate structure
F)Proportional rate structure
G)Regressive rate structure
H)Tax avoidance
I)Tax evasion
J)Vertical equity
Answer: D
Q2) A regressive tax rate structure is defined as a tax in which the average tax rate decreases as the tax base increases.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Income Tax Concepts
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Q1) Substance Over Form Doctrine
A)Taxpayer reports income when received in cash or its equivalent and takes deductions as they are paid.
B)A deduction taken in one year that is recovered in a later year is reported as income in the year of recovery to the extent that the deduction reduced taxable income.
C)Taxpayer reports income as earned and deductions as incurred.
D)The result of an arms-length transaction.
E)Exclusions and deductions result from specific acts of Congress that must be strictly applied and interpreted.
F)The taxability of a transaction is determined by the reality of the transaction rather than some contrived appearance.
G)The reporting of an item of income or expense on a tax return
H)No income is realized until the taxpayer's invested capital is recovered.
I)All income received is taxable unless some specific provision of the tax law allows exclusion of the item.
J)These taxpayers are not deemed to transact at arms-length.
Answer: F
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Chapter 3: Income Sources
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Sample Questions
Q1) Penny,age 45,purchased an annuity contract that cost $45,000.The contract will pay Penny $600 per month for 10 years after she reaches age 62.During the current year,Penny turns 62 and receives 4 payments under the contract.Penny's taxable income from the annuity payments is:
A)$900
B)$1,500
C)$1,708
D)$2,250
E)$2,400
Answer: A
Q2) Nora receives a salary of $55,000 during the current year.She sells some land that she held as an investment at a loss of $15,000 and some stock at a gain of $10,000.Nora's adjusted gross income is:
A)$50,000
B)$52,000
C)$55,000
D)$62,000
E)$65,000
Answer: B
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5
Chapter 4: Income Exclusions
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Sample Questions
Q1) Punitive damages
A)Dues, uniforms, subscriptions.
B)Intended to punish and are taxable.
C)Taxable if from an employer-provided policy.
D)Any personal wrong, such as libel, slander, or assault.
E)Excludable amount limited to gross profit percentage.
F)Gratuitous and not a form of compensation for services.
G)Excludability requires that it must be a condition of employment.
H)Excluded if for compensatory payments for sickness or personal physical injury.
I)To replace lost earnings and is excluded if due to personal physical injury.
J)Excluded if provided on the employer's business premises and for the convenience of employer.
Q2) Matt,a U.S.citizen,can exclude all of his $110,000 salary he earned as a bullfighter in Spain where he lived all year,from his U.S.tax return.
A)True
B)False
Q3) Laura's employer pays the first $5,000 in childcare benefits under their childcare assistance plan.
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Chapter 5: Introduction to Business Expenses
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Q1) Personal Expense
A)Specifically disallowed.
B)Appropriate and helpful.
C)Considered a trade or business.
D)Not considered a trade or business.
E)Problems with this generally arise with related parties.
F)This is met when services or property are provided to the taxpayer.
G)Normal, common, and accepted but not necessarily regularly recurring.
H)This is met when the existence and the amount of a liability have been established.
Q2) Which of the following can be deducted as a trade or business expense?
A)Lobbying expenses to influence taxpayers.
B)Political contribution to elect a local Congressman.
C)Illegal bribes to government
D)Rent paid on a office to run an illegal gambling operation.
E)None of the above can be deducted.
Q3) An individual should be indifferent whether an expense is deducted for or deducted from adjusted gross income.
A)True
B)False
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Page 7
Chapter 6: Business Expenses
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Sample Questions
Q1) Kyle is married and a self-employed landscaper.During the current year,Kyle pays $3,000 for health insurance coverage for himself.He pays another $400 for coverage for his employee,Tabatha.How should Kyle deduct the health insurance cost?
i.Kyle deducts a total of $3,400 for AGI.II.Kyle cannot deduct any portion of his premium of $3,000 for AGI if his spouse is covered by a health plan through her employer.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) Discovery,Inc.,a cash-basis consulting firm,can deduct a twelve-month insurance premium in the year the premium is paid even though the policy remains in effect into the following year.
A)True
B)False
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8
Chapter 7: Losses-Deductions and Limitations
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Sample Questions
Q1) All of the following are capital assets,except
A)Personal residence.
B)Land used for business parking lot.
C)Pickup truck used for personal transportation..
D)Corporate bonds held for investment purposes.
E)A hand-written letter by Dwight Eisenhower held in a private collection.
Q2) Jennifer's business storage shed is damaged by a hail storm.The shed is uninsured.Its adjusted basis is $8,000.Just before the accident the shed is appraised for $10,000.In its damaged condition,the shed can be sold for $4,000.What is Jennifer's loss from the storm?
A)$- 0 -
B)$ 4,000
C)$ 6,000
D)$ 8,000
E)$10,000
Q3) A transaction loss occurs when an asset is disposed of at less than its basis.
A)True
B)False
Q4) Why did Congress enact the at-risk rules?
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Chapter 8: Taxation of Individuals
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Sample Questions
Q1) Carey and Corrine are married and have two children in college.Jason is a sophomore,and Justine is a senior.They pay $2,000 in tuition and fees for Jason,$600 for his books and $3,000 for his room and board.Justine's tuition and fees are $3,000,her book expense is $800,and her room and board expenses are $2,600.Their adjusted gross income is $165,000.What amount can they claim as a tax credit for the higher education expenses she pays?
A)$-0-
B)$1,875
C)$3,450
D)$4,600
E)None of the above
Q2) Which of the following taxes is deductible from adjusted gross income when paid by an individual taxpayer?
I.State income tax.
II.State excise tax on gasoline.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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Page 10
Chapter 9: Acquisitions of Property
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Sample Questions
Q1) Split basis
A)Begins on the day after acquisition and ends on the day of disposition.
B)The initial investment in an asset.
C)An asset's basis transfers from one owner to another.
D)The capital investment remaining in an asset at the date of its disposition.
E)Sales price less expenses of disposition.
F)A purchase of all of the assets of a business.
G)Amount realized is less than adjusted basis.
H)A purchase of all of the assets of a business by buying the stock of a corporation.
I)A term used to identify a situation in which an asset has a different basis for determining gain than for determining loss.
J)The date of death used to value a decedent's estate in the absence of any special election.
K)Six months after the date of death, used to value a decedent's estate when the executor of the estate makes election.
L)Amount realized is greater than adjusted basis.
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11
Chapter 10: Cost Recovery on Property: Depreciation, depletion,
and Amortization
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Sample Questions
Q1) Brent purchases a new warehouse building on May 16,2015,for $6,000,000 (exclusive of the cost of the land).What is Brent's 2016 depreciation deduction?
A)$- 0 -
B)$76,924
C)$153,840
D)$119,040
E)$400,000
Q2) MACRS requires the use of one of three conventions.For personal property,the general and most common convention is
A)mid-life
B)mid-quarter.
C)mid-month.
D)mid-year.
Q3) Pedro purchased used delivery equipment costing $80,000 and used computers costing $90,000 (the only assets purchased)that are used in his business.He may allocate his section 179 deduction to either or both assets.
A)True
B)False
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Chapter 11: Property Dispositions
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Sample
Questions
Q1) Carlos received an antique dresser from his aunt.Since the dresser is worth $6,000 more than what his aunt paid for it,the holding period begins with the date of the gift.
A)True
B)False
Q2) Unrecaptured Section 1250 gain is the amount of gain on the sale of personal assets by individuals not otherwise treated as ordinary income.
A)True
B)False
Q3) When securities are sold and the securities were purchased on different dates and at different prices
I.the basis of the shares may be determined on a first-in,first-out basis.
II.the basis of the shares may be determined on a last-in,first-out basis.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q4) George sells his personal use automobile at a loss of $4,300.
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Page 13
Chapter 12: Non-Recognition Transactions
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Sample Questions
Q1) Natural Power Corporation owns a warehouse with an adjusted basis of $195,000 and an appraised fair market value of $185,000.The city of Springfield condemns the property for a new airport.The condemnation award is $185,000.Natural Power invests the $185,000 in a new warehouse on the other side of the city.What is the gain or loss that Natural Power Corporation must recognize due to the transactions?
A)No gain or loss
B)$10,000 gain
C)$10,000 loss
D)$185,000 gain
Q2) Rationale for nonrecognition of property transactions exists because of which concept(s)of taxation?
I.Wherewithal-to-Pay Concept.
II.Constructive receipt Doctrine.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
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14
Chapter 13: Choice of Business Entity-General Tax and
Nontax
Factorsformation
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Q1) Nigel and Frank form NFS,Inc.an electing S corporation,by combining the assets of their respective businesses.Nigel contributes $10,000 and assets worth $90,000 (adjusted basis of $60,000)for a 1/3 interest.Frank contributes $90,000 and assets worth $270,000 (adjusted basis of $150,000)for a 2/3 interest.NFS also assumes $60,000 of debt on Frank's assets.What is Frank's basis in his stock?
A)$180,000
B)$220,000
C)$240,000
D)$300,000
E)$360,000
Q2) Larry and Laureen own LL Legal Services Corporation equally.The two owners are practicing attorneys employed by the corporation.The only business activity of the entity is the provision of legal services.During the current tax year,the corporation's taxable income is $100,000.What is the corporation's income tax liability?
A)$22,250
B)$34,000
C)$35,000
D)$26,150
Q3) Discuss the characteristics of a personal service corporation (PSC).
Page 15
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Chapter 14: Choice of Business Entity-Operations and Distributions
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Q1) Roger owns 25% of Silver Trucking,a partnership.During the current year,Roger sells a truck with an adjusted basis of $25,000 to Silver for $18,000.
I.Silver's basis in the truck is $25,000.
II.Roger can deduct the $7,000 loss on the sale of the truck.
A)Only statement I is correct.
B)Only statement II is correct.
C)Both statements are correct.
D)Neither statement is correct.
Q2) A corporation's excess charitable contributions over the amount deductible
A)May be carried back two years and forward 20 years.
B)May be carried back or forward for two years at the corporation's election.
C)May be carried forward for a maximum of five succeeding years.
D)Is not deductible in any future or prior year.
Q3) Discuss two tax-planning techniques that can be used by a 100% owner-employee to reduce his/her tax liability.
Q4) Withdrawals of cash by a partner are taxable.
A)True
B)False
Page 16
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Chapter 15: Choice of Business Entity-Other Considerations
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Q1) Amanda is an employee of the Kiwi Corporation with a yearly salary of $80,000.The company maintains a noncontributory profit-sharing plan.During the year the company contributes $24,000 to the plan on her behalf in recognition of her outstanding work.The Kiwi Corporation is subject to an excess contribution penalty of
A)$-0-
B)$400
C)$1,000
D)$2,000
E)$3,750
Q2) Ross and Reba are both in their 30's and they are married.Reba earns $64,000 annually,and Ross earns $1,800 annually working part time.Their adjusted gross income is $81,500.Reba participates in an employer-sponsored retirement plan.Ross and Reba contribute the maximum amount allowable annually to their IRAs.What is their allowable deduction for this year's contributions?
A)$- 0 -
B)$1,800
C)$5,000
D)$6,800
E)$11,000
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Chapter 16: Tax Research
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Q1) Dwayne is upset by an IRS agent's decision after an audit of Dwayne's tax return.Dwayne tells you,"I'm taking this case all the way to the Supreme Court." Comment on the appropriateness of Dwayne's statement.
Q2) Tax articles in law review journals are primary sources of federal income tax law.
A)True
B)False
Q3) Which of the following is (are)secondary sources of tax law?
I.Tax Notes.
II.LEXIS.
III.RIA Federal Tax Citator.
IV.Tax Court Memorandum.
A)Statements I, II, and III are correct.
B)Statements I and II are correct.
C)Statements II and IV are correct.
D)Only statement IV is correct.
E)Only statement III is correct.
Q4) Describe the steps of the tax research process.
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