Taxation of Entities Study Guide Questions - 1645 Verified Questions

Taxation of Entities Study Guide Questions

Course Introduction

This course provides an in-depth examination of federal income taxation as it applies to various business entities, including corporations, partnerships, S-corporations, and limited liability companies. Students will explore the tax implications of entity formation, operation, distributions, and liquidation, focusing on the differences and similarities in the treatment of each entity type. The course covers key topics such as tax compliance, tax planning strategies, the allocation of income and deductions among owners, and the impact of entity selection on overall tax liability. Through real-world examples, case studies, and current tax law analysis, students will gain the skills necessary to navigate complex entity taxation issues and to advise businesses on tax-efficient organizational structures.

Recommended Textbook

MP Fundamentals of Taxation 2015 8th Edition by Ana Cruz

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15 Chapters

1645 Verified Questions

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Page 2

Chapter 1: Introduction to Taxation, the Income Tax

Formula,

and Form 1040ez

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Sample Questions

Q1) For equivalent amounts of taxable income,the total tax liability of a couple using the married filing jointly status:

A) Will be less than single filing status.

B) Will be more than single filing status.

C) Will be more than married filing separately status.

D) Cannot be determined with the information provided.

Answer: A

Q2) The average tax rate is the total tax liability divided by the taxable income. A)True

B)False

Answer: True

Q3) Which of the following statements is correct?

A) The Internal Revenue Code pertains only to income taxes.

B) Private Letter Rulings are issued by the IRS and are considered to be general tax authority.

C) Temporary Regulations expire three years after issuance.

D) Upon deciding a tax case,the court will issue a Revenue Ruling.

Answer: C

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Chapter 2: Expanded Tax Formula, Forms 1040a and 1040, and Basic Concepts

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Sample Questions

Q1) A taxpayer who has income that is not subject to withholding is never required to make estimated payments during the year.

A)True

B)False

Answer: False

Q2) A taxpayer who either is 65 or older or blind can claim an additional standard deduction.

A)True

B)False

Answer: True

Q3) Jane,Joseph and John are supporting their father who lives in a separate apartment.Their contribution towards his support is 10%,35% and 55%,respectively.In a multiple support agreement,who would be entitled to claim the father as a dependent?

A) Jane.

B) Joseph or John.

C) Jane,Joseph or John.

D) None of these.

Answer: B

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Chapter 3: Gross Income: Inclusions and Exclusions

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Sample Questions

Q1) A stock dividend in which a shareholder has the option to receive cash is not taxable.

A)True

B)False

Answer: False

Q2) When a taxpayer reports income when received,this is called the ________ method.

A) Accrual basis of accounting

B) Cash receipts and disbursements

C) Deferred

D) Income tax progressive

Answer: B

Q3) Imputed interest rules do not apply to the following:

A) Sale of property for $3,000 or less.

B) Sale of a personal residence.

C) Sale of a farm for $1 million or less.

D) Both Sale of property for $3,000 or less and Sale of a personal residence. Answer: A

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Chapter 4: Adjustments for Adjusted Gross Income

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Q1) Under a divorce agreement executed in 2014,periodic payments of either cash or property must be made at regular intervals to be deductible as alimony.

A)True

B)False

Q2) What is the amount of self-employment tax that self-employed individuals must pay and what is the proper treatment on their tax return?

Q3) What are the contribution amounts for a Health Savings Account for 2014?

Q4) Which of the following types of income is subject to the self-employment tax?

A)Income from a sole proprietor's coffee shop.

B)Gain on the sale of a home.

C)W-2 income.

D)Interest earned on a bank account.

Q5) For 2014,the maximum deductible and annual out-of-pocket expenses for family coverage on a high deductible health plan for a Health Savings Account is:

A)$ 2,500.

B)$ 6,350.

C)$11,900.

D)$12,700.

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Chapter 5: Itemized Deductions

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Sample Questions

Q1) Taxpayers must itemize their deductions to be allowed a charitable contribution deduction.

A)True

B)False

Q2) For medical expenses,only expenses in excess of 7.5 percent of adjusted gross income are deductible.

A)True

B)False

Q3) For 2014,the AGI threshold for the deductibility of personal casualty losses generally is:

A)2%.

B)5%.

C)7.5%.

D)10%.

Q4) What is usually the largest miscellaneous itemized deduction category? Does it require any special treatment?

Q5) For 2014,high-income taxpayers do not have to forfeit part of their itemized deductions.

A)True

B)False

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Chapter 6: Self-Employed Business Income

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Sample Questions

Q1) Della purchased a warehouse on February 25,2014,for $350,000.$45,000 of the price was for the land.What is her cost recovery deduction for 2014 rounded to the nearest dollar?

A) $6,853.

B) $7,865.

C) $9,705.

D) $11,137.

Q2) The standard mileage rate includes parking fees,tolls,and property taxes on the vehicle.

A)True

B)False

Q3) Education expenses are deductible if the education maintains or improves existing skills or if the education helps the taxpayer qualify for a new trade or business.

A)True

B)False

Q4) During 2014,Regina,a sole proprietor,had the following income and expenses from her home jewelry business.Regina is also employed as an office assistant at a local business:

Q5) Bart has the following income and expenses for his Schedule C:

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Chapter 7: Capital Gains and Other Sales of Property

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Sample Questions

Q1) Section 1231 property is:

A) Property used in a trade or business that is subject to depreciation and is held for more than one year.

B) Property used in a trade or business that may or may not be subject to depreciation and held for less than one year.

C) All property used in a trade or business regardless of how long the asset is held.

D) Property used in a trade or business that may or may not be subject to depreciation and is held for more than one year.

Q2) When a Section 1231 asset is sold,the gain can be either classified as an ordinary or capital gain.

A)True

B)False

Q3) All gains and losses on the sale of property that was held for more than one year is subject to preferential tax rates.

A)True

B)False

Q4) Jim,the owner of a sole proprietorship,sold the following assets in 2014:

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Chapter 8: Rental Property, Royalties, and Income From

Flow-Through Entities

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Sample Questions

Q1) Rental income may be reported on a Schedule A or a Schedule C.

A)True

B)False

Q2) When royalties are paid,the amount paid is reported to the recipient by the payer on a Form 1099-MISC.

A)True

B)False

Q3) Which of the following statements is true concerning vacation home properties?

A) A property rented for 15 days or more and used for personal use for no more than 14 days is categorized as primarily rental.

B) A property rented for 15 days or more and used for personal use for more than 14 days is categorized as primarily personal.

C) A property categorized as primarily personal is one rented for zero days.

D) Report all income and expenses for a personal/rental property and the net amount reported may be either net income or net loss.

Q4) What are the criteria that determine an amount as capital improvement rather than repair and maintenance expense? What is the proper tax treatment of a capital improvement for rental properties?

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Chapter 9: Tax Credits

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Sample Questions

Q1) In which of the following situations would a taxpayer be better off to take the foreign taxes paid as an itemized deduction rather than as a foreign tax credit?

A) The foreign tax paid was less than 10% of AGI.

B) The foreign tax paid was to a South American country.

C) The foreign tax paid was a property tax.

D) The foreign tax paid was an income tax.

Q2) Victoria is a single with two qualifying children and AGI of $24,000.What is her EIC?

A) $496.

B) $3,305.

C) $4,161.

D) $5,460.

Q3) Donna and Walt paid $3,000 in qualified expenses for their son,Jimmy,to attend the South Coast Business College.Jimmy is a business major in his first year.A year ago,Jimmy was arrested and convicted of felony drug possession.He has not been in any trouble since then.What education credits are available for Donna and Walt and how much can they claim?

Q4) In the case of the adoption credit,what special rules apply when adopting a child who is a citizen of another country?

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Page 11

Chapter 10: Payroll Taxes

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Sample Questions

Q1) Unless specifically excluded,what is the penalty for sending a required tax payment directly to the Internal Revenue Service?

A) 2%.

B) 5%.

C) 10%.

D) 15%.

Q2) Nikki's salary is $209,950 in 2014.How much social security and Medicare taxes will be withheld from Nikki's salary for the year?

Q3) The penalty for filing W-2s containing mismatched names and social security numbers is:

A) $15 per return.

B) $30 per return.

C) $50 per form.

D) $100 per return.

Q4) Although the federal unemployment tax is 6.0% of covered wages,employers receive a 5.4% federal credit if they make accurate and timely state unemployment tax deposits.

A)True

B)False

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Page 12

Chapter 11: Retirement and Other Tax-Deferred Plans and Annuities

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Sample Questions

Q1) Under what circumstances might an individual want to establish an annuity contract in retirement?

Q2) Individuals age 50 or older can make greater annual contributions to an IRA. A)True

B)False

Q3) What is the maximum deductible contribution that can be made to one or more deductible IRAs in each of the following instances?

a.A single person,age 41,who is not an active participant in an employer-sponsored retirement plan with AGI of $97,000.

b.A married couple,ages 33 and 34,neither of whom is an active participant in an employer-sponsored retirement plan.One spouse has W-2 income of $57,000 and the other spouse did not work.

c.A married couple,ages 44 and 48.One spouse is covered under an employer-sponsored retirement plan and the other is not.The covered spouse has W-2 income of $125,000 and the non-covered spouse has W-2 income of $32,000.

Q4) What is an annuity contract? Who are the parties to an annuity contract?

Q5) What is a good rule of thumb you should use when thinking about the taxability of retirement plan distributions?

Page 13

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Chapter 12: Special Property Transactions

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Sample Questions

Q1) Sanjay exchanges a warehouse he uses in his rental business for a building owned by Sidney which he will use in his rental business.The adjusted basis of Sanjay's building is $320,000 and the fair market value is $500,000.The adjusted basis of Sidney's warehouse is $160,000 and the fair market value is $500,000.Which of the following statements is correct?

A) Sanjay's recognized gain is $0 and his basis for the warehouse received is $500,000.

B) Sanjay's recognized gain is $180,000 and his basis for the warehouse received is $320,000.

C) Sanjay's recognized gain is $0 and his basis for the warehouse received is $320,000.

D) Sanjay's recognized gain is $180,000 and his basis for the warehouse received is $500,000.

Q2) Dr.and Mrs.Spankle purchased a residence on January 12,2010,for $250,000.On May 15,2014,they sold the residence for $360,000,and paid selling expenses of $18,000.They purchased a new home for $354,000.Determine the Spankles' realized and recognized gain.

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Chapter 13: At-Riskpassive Activity Loss Rules and the

Individual Alternative Minimum Tax

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Sample Questions

Q1) Cory sells his entire interest in a rental property in which he actively participated at a gain of $12,000.The activity has a current year loss of $4,800 and $16,000 in prior year suspended losses.During the year,Cory has $80,000 in salary.What is Cory's AGI for the year?

Q2) Itemized deductions are allowed in their entirety for AMT purposes.

A)True

B)False

Q3) For AMT purposes,a taxpayer must use which method to report proceeds from long-term contracts?

A) The completed contract method.

B) The percentage-of-completion method.

C) The installment method.

D) None of these.

Q4) The general rule concerning passive losses is that passive activity losses can only be deducted to the extent of passive and portfolio income.

A)True

B)False

Q5) Identify factors that increase or decrease the at-risk amount.

Page 15

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Chapter 14: Partnership Taxation

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Sample Questions

Q1) Miguel contributes land to a partnership with a basis of $12,000 and a FMV of $18,000.How much gain will Miguel recognize?

A) $0.

B) $6,000.

C) $12,000.

D) $18,000.

Q2) Rental income and expenses are treated as:

A) Ordinary income for all partners.

B) Separately stated because individual partners may treat rental income or losses differently.

C) Capital gains or losses because the rental property is an investment.

D) None of these.

Q3) Partnership income or loss and separately stated items are reported to the individual partners via Schedule K-1.

A)True

B)False

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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Sample

Questions

Q1) QRS Corporation has a fiscal year-end that ends on September 30.It is required to make quarterly estimated payments.The first estimated payment will be due on the 15^th of:

A) November.

B) December.

C) January.

D) February.

Q2) Schedule M-1 reconciles from taxable income to book income.

A)True

B)False

Q3) Parent-subsidiary corporations must file a consolidated tax return.

A)True

B)False

Q4) A corporation has a fiscal year-end of May.If the corporation receives an automatic six-month extension to file its return,the return will be due on the 15^th of:

A) November.

B) December.

C) January.

D) February.

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