Accounting Online Program US Tax Accounting 1 — Questions and Answers
Question 1: Which federal agency administers the US tax code?
- SEC
- FASB
- IRS (Correct answer)
- PCAOB
Correct answer: IRS
The Internal Revenue Service (IRS) is the US federal agency responsible for collecting taxes and administering the Internal Revenue Code.
Question 2: For federal income tax purposes, what is the standard deduction?
- A fixed dollar amount taxpayers can deduct without itemizing (Correct answer)
- The deduction only available to businesses
- The amount equal to total charitable contributions
- A deduction only available to senior citizens
Correct answer: A fixed dollar amount taxpayers can deduct without itemizing
The standard deduction is a fixed amount set by the IRS that reduces taxable income for taxpayers who choose not to itemize deductions.
Question 3: Which of the following is an example of a tax deduction?
- Child tax credit
- Earned income credit
- Mortgage interest deduction (Correct answer)
- Education credit
Correct answer: Mortgage interest deduction
The mortgage interest deduction reduces taxable income (not the tax owed directly), whereas credits reduce the actual tax liability.
Question 4: What is the tax treatment of a long-term capital gain under US federal law?
- Taxed at ordinary income rates
- Taxed at preferential (lower) rates of 0%, 15%, or 20% (Correct answer)
- Exempt from all federal taxes
- Taxed at a flat rate of 35%
Correct answer: Taxed at preferential (lower) rates of 0%, 15%, or 20%
Long-term capital gains (assets held more than one year) are taxed at preferential rates of 0%, 15%, or 20% depending on taxable income.
Question 5: What does FICA stand for in US payroll tax accounting?
- Federal Income and Corporate Assessment
- Federal Insurance Contributions Act (Correct answer)
- Financial Income Compliance Authority
- Federal Internal Cost Allocation
Correct answer: Federal Insurance Contributions Act
FICA stands for the Federal Insurance Contributions Act and funds Social Security and Medicare through payroll taxes split between employer and employee.
Question 6: Which accounting method is generally required for businesses with average annual gross receipts exceeding $30 million?
- Cash method
- Accrual method (Correct answer)
- Installment method
- Percentage-of-completion method
Correct answer: Accrual method
The IRS generally requires larger businesses (exceeding the gross receipts threshold) to use the accrual method, which matches income and expenses to the period they occur.
Accounting Online Program US Tax Accounting 1
Which federal agency administers the US tax code?