Taxation for Business Majors Solved Exam Questions
Course Introduction
This course provides an in-depth introduction to the principles and practices of taxation as they apply to businesses. Students will explore the structure of various tax systems, including federal, state, and local taxes, and learn how tax laws impact business decision-making, financial planning, and reporting. Key topics include taxation of different business entities, tax compliance, tax planning strategies, ethical considerations, and current issues in business taxation. Through real-world examples and case studies, students will develop the skills needed to navigate complex tax regulations, optimize after-tax profits, and ensure compliance with relevant tax authorities.
Recommended Textbook
McGraw Hills Taxation of Individuals 2018 Edition 9th Edition by Spilker Brian C
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14 Chapters
1589 Verified Questions
1589 Flashcards
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Chapter 1: An Introduction to Tax
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Sample Questions
Q1) Milton and Rocco are having a heated debate regarding a national sales tax.Milton argues that a national sales tax is a proportional,vertically equitable tax.Rocco argues that a national sales tax would be a regressive,vertically inequitable tax.Explain both sides of the argument.
Answer: A sales tax by definition is a proportional tax - i.e.,as taxable purchases increase,the sales tax rate (i.e.,the marginal tax rate)remains constant.For this reason,Milton is correct.Nonetheless,when you consider that the proportion of one's total income spent on taxable purchases likely decreases as total income increases,the sales tax may be considered a regressive tax.For this reason,Rocco is correct. Vertical equity is achieved when taxpayers with greater ability to pay tax pay more tax relative to taxpayers with a lesser ability to pay tax.One can view vertical equity in terms of tax dollars paid or in terms of tax rates.Proponents of a sales tax (e.g.,Milton)are more likely to argue that vertical equity is achieved when taxpayers with a greater ability to pay tax pay more in tax dollars.Opponents of a national sales tax (e.g.,Rocco)are more likely to argue that taxpayers with a greater ability to pay should be subject to a higher tax rate.This view is based upon the argument that the relative burden of a sales tax decreases as a taxpayer's income (e.g.,disposable income)increases.
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3
Chapter 2: Tax Compliance, The IRS and Tax Authorities
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Sample Questions
Q1) Revenue rulings and revenue procedures are examples of primary authorities.
A)True
B)False
Answer: True
Q2) The statute of limitations for IRS assessment generally ends four years after the date a tax return is filed.
A)True
B)False
Answer: False
Q3) If a taxpayer has little cash and a very technical tax case that she feels very strongly that the tax rules are "on her side," she should prefer to have her case tried in the U.S.Tax Court.
A)True
B)False
Answer: True
Q4) Office examinations are the most common type of IRS audit.
A)True
B)False Answer: False
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Chapter 3: Tax Planning Strategies and Related Limitations
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Sample Questions
Q1) The goal of tax planning is tax minimization.
A)True
B)False
Answer: False
Q2) Luther was very excited to hear about the potential tax savings from shifting income from his corporation to him.The next day he had his corporation declare a $30,000 dividend to him.Is this an effective income shifting strategy? If so,why? If not,why not? What recommendations do you have for Luther?
Answer: Because corporations do not get a tax deduction for dividends paid,paying dividends is not an effective way to shift income.Instead,paying dividends results in "double taxation" - the profits generating the dividends are taxed first at the corporate level,and then the dividends are taxed at the shareholder level.Luther should attempt to shift income from the corporation to him via methods that generate tax deductions at the corporate level (e.g.,compensation to Luther,rent paid to Luther,interest paid to Luther,etc.).
Q3) The concept of present value is an important part of the timing strategy.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Individual Income Tax Overview, Exemptions, and Filing Status
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Sample Questions
Q1) Taxpayers who file as qualifying widows/widowers are treated exactly the same for tax purposes in all respects as taxpayers who are married filing jointly for tax purposes.
A)True
B)False
Q2) Madison's gross tax liability is $9,000.Madison had $3,000 of tax credits available and she had $8,000 of taxes withheld by her employer.What is Madison's taxes due (or taxes refunded)with her tax return?
A) $0 taxes due and $0 tax refund.
B) $6,000 taxes due.
C) $2,000 tax refund.
D) $1,000 taxes due.
Q3) When determining whether a child meets the qualifying child support test for the parents,scholarships earned by the child do not count as self-support provided by the child.
A)True
B)False
Q4) Tax credits reduce taxable income dollar for dollar.
A)True
B)False
Page 6
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Chapter 5: Gross Income and Exclusions
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Sample Questions
Q1) A taxpayer who borrows money will include that amount borrowed in their gross income under the all-inclusive definition of income.
A)True
B)False
Q2) Scholarships are excluded from gross income for degree candidates even if the scholarship pays for required fees and books in addition to tuition.
A)True B)False
Q3) This year Kelsi received a $1,900 refund of state income taxes that she paid last year.Last year Kelsi claimed itemized deductions of $7,400 including $2,800 of state income taxes.How much of the refund,if any,must Kelsi include in gross income if the standard deduction last year was $6,300?
Q4) Simon was awarded a scholarship to attend State Law School from Gary Harris & Associates,Attorneys at Law.The scholarship pays Simon's tuition ($7,000 per semester),fees ($500 per semester),and a $4,500 per semester stipend to pay for food and housing.In order to qualify for the stipend,Simon must work 10 hours per week at Gary Harris & Associates during the term.How much of the scholarship is Simon required to include in gross income?
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Page 7
Chapter 6: Individual Deductions
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Sample Questions
Q1) All business expense deductions are claimed as "above the line" deductions.
A)True
B)False
Q2) Which of the following is a true statement?
A) Traveling from a personal residence to a place of business is deducted for AGI as a moving expense.
B) Traveling from a personal residence to a place of business is a miscellaneous itemized deduction subject to the 2 percent of AGI limitation.
C) The standard mileage rate can be used to calculate the deduction for traveling from a personal residence to a place of business.
D) Traveling from a personal residence to a place of business is deductible if reimbursed by an employer.
E) Traveling from a personal residence to a place of business is nondeductible.
Q3) The medical expense deduction is designed to provide relief for doctors and medical practitioners.
A)True
B)False
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8
Chapter 7: Investments
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Sample Questions
Q1) On December 1,20X7,George Jimenez needed a little extra cash for the upcoming holiday season,and sold 250 shares of Microsoft stock for $50 per share less a broker's fee of $200 for the entire sale transaction.Prior to the sale,George held the following blocks of Microsoft stock (associated broker's fee paid at the time of purchase):
\[\begin{array} { l c c c }
\text { Acquisition Date } & \text { Nurber of Bhares } & \text { Market Prce Wher Acquired } & \text { Broker's Fee } \\
1 / 1 \times 4 & 300 & \$ 35 \text { per share } & \$ 250 \\ \text { s/30/X6 } & 300 & \$ 45 \text { per share } & \$ 250 \end{array}\] If his goal is to minimize his current capital gain,how much capital gain will George report from the sale?
Q2) When electing to include long-term capital gains and qualified dividends in net investment income,taxpayers must include all long-term capital gains and dividends recognized for that year.
A)True
B)False
Q3) How are individual taxpayers' investment expenses and investment interest expense treated for tax purposes?
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9
Chapter 8: Individual Income Tax Computation and Tax Credits
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Sample Questions
Q1) Hester (age 17)is claimed as a dependent by his parents,Charlton and Abigail.In 2017,Hester received $10,000 of qualified dividends and he received $6,200 from a part time job.What is his taxable income for 2017?
A) $16,200
B) $15,150
C) $9,850
D) $9,650
Q2) Hera wants to reduce her income tax liability by shifting some of her income to her 10-year-old daughter (a dependent),Athena.Last year,Hera gifted corporate bonds to Athena.This year,Athena received $1,550 in interest income from the bonds.What amount of tax will Athena pay on the interest income?
Q3) The amount of expenditures eligible for the child and dependent care credit is the least of three amounts.Which of the following is not one of those amounts?
A) The total amount of child and dependent care expenditures for the year.
B) $3,000 for one qualifying person or $6,000 for two or more qualifying persons.
C) The dependent's earned income for the year.
D) The taxpayer's earned income for the year.
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Page 10
Chapter 9: Business Income, Deductions, and Accounting Methods
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Sample Questions
Q1) Which of the following is a payment liability?
A) Tort claims.
B) Refunds.
C) Insurance premiums.
D) Real estate taxes.
E) All of the choices are correct.
Q2) Only half the cost of a business meal is deductible even if the meal is associated with the active conduct of business.
A)True
B)False
Q3) The phase "ordinary and necessary" has been defined to mean that an expense must be essential and indispensable to the conduct of a business.
A)True
B)False
Q4) A fiscal tax year can end on the last day of any month other than December.
A)True
B)False
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Chapter 10: Property Acquisition and Cost Recovery
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Sample Questions
Q1) Which of the following is not usually included in an asset's tax basis?
A) Purchase price
B) Sales tax
C) Shipping
D) Installation costs
E) All of the choices are included in an asset's tax basis.
Q2) The MACRS recovery period for automobiles and computers is:
A) 3 years.
B) 5 years.
C) 7 years.
D) 10 years.
E) None of the choices are correct.
Q3) Columbia LLC only purchased one asset this year.Columbia LLC placed in service on October 9,2017 machinery and equipment (7-year property)with a basis of $2,150,000.Assume that Columbia has sufficient income to avoid any limitations.Calculate the maximum depreciation expense including §179 expensing (but ignoring bonus expensing)for the year.(Use MACRS Table 2 in the text)(Round final answer to the nearest whole number)
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12
Chapter 11: Property Dispositions
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Sample Questions
Q1) Foreaker LLC sold a piece of land that it uses in its business for $52,000.Foreaker bought the land two years ago for $42,500.What is the amount and character of Foreaker's gain?
A) $9,500 §1221.
B) $9,500 §1231.
C) $9,500 §1245.
D) $9,500 §1250.
E) None of the choices are correct.
Q2) Reid had a business building destroyed in a fire.The old building was purchased for $375,000 and $60,000 of depreciation deductions had been taken.Although the old building had a fair market value of $425,000 at the time of the fire,his insurance proceeds were limited to $400,000.Reid found qualified replacement property which he acquired six months later for $390,000.What is the amount of Reid's realized gain and recognized gain?
Q3) Unrecaptured §1250 gains apply only to individuals.
A)True
B)False
Q4) Accounts receivable and inventory are examples of ordinary assets.
A)True
B)False
Page 13
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Chapter 12: Compensation
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Sample Questions
Q1) Kimberly's employer provides her with a personal travel allowance of $10,000 annually.Her marginal tax rate is 30 percent.Her employer has a marginal tax rate of 35 percent.What is Kimberly's after-tax benefit,ignoring payroll taxes?
Q2) Rachel receives employer provided health insurance.The employer's cost of the health insurance is $6,000 annually.What is her employer's after-tax cost of providing the health insurance,assuming that the employer's marginal tax rate is 35 percent and is profitable?
A) $0.
B) $3,900.
C) $4,198.
D) $6,000.
Q3) Raja received 20 NQOs (each option gives him the right to purchase 15 shares of stock for $10 per share)from his employer at the time he started working when the stock price was $11 per share.Now that the share price is $20 per share,he intends to exercise all of the options using a same-day sale.What are Raja's after-tax proceeds from the sale if his marginal tax rate is 30 percent?
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Page 14
Chapter 13: Retirement Savings and Deferred Compensation
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Sample Questions
Q1) When employees contribute to a traditional 401(k)plan,they ________ allowed to deduct the contributions and they ________ taxed on distributions from the plan.
A) are; are not
B) are; are
C) are not; are
D) are not; are not
Q2) Which of the following statements regarding Roth IRAs distributions is true?
A) A distribution is not a qualified distribution unless the distribution is at least two years after the taxpayer has opened the Roth IRA.
B) A taxpayer receiving a distribution from a Roth IRA before reaching the age of 55 is generally not subject to an early distribution penalty.
C) A Roth IRA does not have minimum distribution requirements.
D) The full amount of all nonqualified distributions is subject to tax at the taxpayer's marginal tax rate.
Q3) Scott and his wife Leanne (ages 39 and 37 respectively)earned $50,000 in 2017.Scott was able to contribute $2,400 ($200/month)to his employer sponsored 401(k).What amount of saver's credit can Scott and Leanne claim in 2017?
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Page 15
Chapter 14: Tax Consequences of Home Ownership
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Sample Questions
Q1) A taxpayer who purchases real property during the year is allowed to deduct the property taxes on that property for the entire year in which the property was purchased.
A)True
B)False
Q2) A taxpayer who otherwise meets the ownership and use tests may not be allowed to exclude all of her realized gain if the taxpayer has nonqualified use of the home before selling.
A)True
B)False
Q3) A taxpayer who sells a principal residence that has been used (or is being used)as a rental property since 2005 will not be allowed to exclude the portion of the gain attributable to depreciation even if the taxpayer meets the ownership and use tests and the gain realized on the sale is lower than the maximum exclusion amount.
A)True
B)False
Q4) A tax loss from a rental home is a passive activity loss.
A)True
B)False
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