CTA Business Taxation 2 — Questions and Answers
Question 1: Which IRC Section allows small businesses to immediately expense the cost of qualifying property rather than depreciate it over time?
- Section 179 (Correct answer)
- Section 168
- Section 197
- Section 280F
Correct answer: Section 179
IRC Section 179 allows businesses to immediately deduct the cost of qualifying property up to an annual limit.
Question 2: What is the purpose of Schedule K-1 in partnership taxation?
- To report payroll tax deposits
- To allocate each partner's distributive share of income, deductions, and credits (Correct answer)
- To calculate the partnership's self-employment tax
- To report the partnership's total gross receipts
Correct answer: To allocate each partner's distributive share of income, deductions, and credits
Schedule K-1 is issued by partnerships to each partner showing their allocated share of income, losses, deductions, and credits for use on their individual returns.
Question 3: Which of the following expenses is generally NOT deductible for a C corporation?
- Ordinary business expenses
- Dividends paid to shareholders (Correct answer)
- Employee salaries
- Business-related travel
Correct answer: Dividends paid to shareholders
Dividends paid to shareholders are not deductible by a C corporation and represent the core of double taxation.
Question 4: What is the corporate alternative minimum tax (CAMT) rate introduced by the Inflation Reduction Act?
- 10%
- 12%
- 15% (Correct answer)
- 20%
Correct answer: 15%
The Inflation Reduction Act of 2022 established a 15% corporate alternative minimum tax on adjusted financial statement income for large corporations.
Question 5: Under the MACRS system, what is the recovery period for 5-year property (e.g., automobiles, computers)?
- 3 years
- 5 years (Correct answer)
- 7 years
- 10 years
Correct answer: 5 years
Under MACRS, 5-year property has a 5-year recovery period using the 200% declining balance method.
Question 6: Which of the following business entities provides limited liability protection to all owners while being taxed as a partnership by default?
- General partnership
- C corporation
- Limited liability company (LLC) (Correct answer)
- Sole proprietorship
Correct answer: Limited liability company (LLC)
An LLC with multiple members provides limited liability to all members and is taxed as a partnership by default.
CTA Business Taxation 2
Which IRC Section allows small businesses to immediately expense the cost of qualifying property rather than depreciate it over time?