IRS Business Taxation 2

Question 1

A corporation uses the accrual method of accounting. When can it deduct a business expense?

Accepted Answer

When all events have occurred that fix the liability and the amount can be determined with reasonable accuracy

Answer

When the check is written

Answer

When the expense is approved by management

Answer

When the expense is paid in cash

Question 2

Which of the following is NOT a qualifying expense for the Section 179 deduction?

Accepted Answer

Inventory held for sale

Answer

Computer equipment

Answer

Office furniture

Answer

Machinery used in manufacturing

Question 3

An S corporation has a net loss for the year. How is this loss treated by a shareholder?

Accepted Answer

It passes through to shareholders and is deductible up to their basis in stock and debt

Answer

It is carried forward at the corporate level only

Answer

It is permanently lost and cannot be deducted

Answer

It is automatically deductible against the shareholder's W-2 wages

Question 4

What is the corporate tax rate for C corporations under current law?

Accepted Answer

21%

Answer

25%

Answer

28%

Answer

35%

Question 5

A partnership purchases land for $200,000. The land is distributed to a partner when its FMV is $250,000. What is the partner's basis in the land?

Accepted Answer

The partnership's adjusted basis in the land at time of distribution

Answer

$250,000 (FMV at distribution)

Answer

$200,000 (partnership's original cost)

Answer

$0, as distributed property takes a zero basis

Question 6

Which depreciation method generally produces the largest deduction in the first year for 5-year MACRS property?

Accepted Answer

200% declining balance

Answer

Straight-line

Answer

150% declining balance

Answer

Units of production

Question 7

A C corporation pays a dividend to its individual shareholders. How is this dividend taxed at the individual level?

Accepted Answer

It is taxed as a qualified dividend at preferential capital gains rates

Answer

It is tax-free because the corporation already paid tax on the income

Answer

It is taxed as ordinary income at regular rates

Answer

It is only taxable if the dividend exceeds the shareholder's basis