ABA Tax Preparation & Compliance 2 — Questions and Answers
Question 1: A self-employed individual earns $90,000 in net self-employment income. What is the deductible portion of self-employment tax on Form 1040?
- One-half of the calculated SE tax (Correct answer)
- The full amount of SE tax paid
- 25% of net self-employment income
- SE tax is not deductible
Correct answer: One-half of the calculated SE tax
Self-employed individuals may deduct one-half of their self-employment tax as an above-the-line deduction on Form 1040.
Question 2: Which form is used to report wages, tips, and other compensation paid to employees and the taxes withheld?
- Form 1099-NEC
- Form W-2 (Correct answer)
- Form 1096
- Form 941
Correct answer: Form W-2
Form W-2 (Wage and Tax Statement) is issued by employers to report employee wages and withholdings to both employees and the IRS.
Question 3: An accrual-basis taxpayer receives payment in December for services to be performed in February of the next year. When must the income generally be recognized?
- February, when services are performed
- December, when cash is received (Correct answer)
- January 1 of the following year
- When the invoice is issued
Correct answer: December, when cash is received
Under the claim of right doctrine, income received without restriction must be reported in the year received, even for accrual-basis taxpayers.
Question 4: Which of the following is an 'above-the-line' deduction for an individual taxpayer?
- Charitable contributions
- Mortgage interest
- Student loan interest (Correct answer)
- State income taxes paid
Correct answer: Student loan interest
Student loan interest (up to $2,500) is an above-the-line deduction, reducing AGI without requiring itemization.
Question 5: A married couple filing jointly has AGI of $130,000. What is the maximum annual IRA contribution limit per person for 2024?
- $6,000
- $6,500
- $7,000 (Correct answer)
- $7,500
Correct answer: $7,000
For 2024, the IRA contribution limit is $7,000 per person (or $8,000 for those age 50+), subject to income phase-outs for deductibility.
Question 6: A business owner uses their personal vehicle 60% for business. The vehicle cost $40,000. Using the actual expense method, what is the maximum depreciable basis for business use?
- $40,000
- $24,000 (Correct answer)
- $16,000
- $20,000
Correct answer: $24,000
The depreciable business-use basis is $40,000 × 60% = $24,000, since only the business-use percentage of the cost qualifies.
Question 7: Which tax form is required for a partnership to report its income, deductions, and credits to the IRS?
- Form 1120
- Form 1120-S
- Form 1065 (Correct answer)
- Form 1041
Correct answer: Form 1065
Form 1065 (U.S. Return of Partnership Income) is the information return filed by partnerships, with income flowing through to partners via Schedule K-1.
ABA Tax Preparation & Compliance 2
A self-employed individual earns $90,000 in net self-employment income.
What is the deductible portion of self-employment tax on Form 1040?