Practice Test Geeks(CPA) Certified Practicing Accountant Practice Test
← All CPA Flashcard Decks

Tax Planning & Compliance Flashcards

7 cards from real CPA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 7 Tax Planning & Compliance flashcards as text

  1. A corporation has $500,000 of taxable income and pays $105,000 in federal income tax. What is the effective tax rate?

    Answer: 21%

    Under the Tax Cuts and Jobs Act of 2017, the flat corporate tax rate is 21%, so $500,000 × 21% = $105,000.

  2. Which depreciation method generally provides the largest tax deductions in the early years of an asset's life?

    Answer: Double-declining balance

    Double-declining balance is an accelerated method that applies twice the straight-line rate to the declining book value, front-loading deductions.

  3. Under IRC Section 179, what is the primary benefit to a business?

    Answer: Immediate expensing of qualifying property rather than depreciating over its useful life

    Section 179 allows businesses to immediately deduct the full cost of qualifying depreciable property in the year placed in service, subject to annual limits.

  4. A taxpayer sells a capital asset held for 18 months at a $10,000 gain. How is this gain classified?

    Answer: Long-term capital gain

    Assets held more than 12 months qualify for long-term capital gain treatment, which is taxed at preferential rates (0%, 15%, or 20%).

  5. Which entity type allows owners to avoid double taxation while providing liability protection similar to a corporation?

    Answer: S corporation

    An S corporation passes income and losses directly to shareholders, avoiding corporate-level tax while still providing limited liability protection.

  6. What is the purpose of the alternative minimum tax (AMT) for individuals?

    Answer: To ensure high-income taxpayers pay a minimum level of tax by limiting certain deductions and preferences

    The AMT recalculates taxable income by adding back preferences and adjustments, ensuring taxpayers who benefit from many deductions still pay a baseline amount of tax.

  7. A married couple filing jointly has $250,000 in net investment income and $300,000 in modified AGI. How much of their investment income is subject to the Net Investment Income Tax (NIIT)?

    Answer: $50,000

    NIIT applies to the lesser of net investment income or the excess of MAGI over the threshold ($250,000 for MFJ); $300,000 − $250,000 = $50,000 subject to the 3.8% NIIT.