Question 1

During the current year, Margie earned wage income of $300,000. If Margie is single, which of the following statements regarding her Medicare tax liability is true?

Accepted Answer

A)  Margie will owe both the regular 1.45 percent Medicare tax and the additional .9 percent Medicare tax on her entire wage income. 
B)  Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $200,000. 
C)  Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $250,000. 
D)  Margie's employer is required to withhold both the regular Medicare tax but does not withhold the additional .9 percent Medicare tax. 
A)  Margie will owe both the regular 1.45 percent Medicare tax and the additional .9 percent Medicare tax on her entire wage income. 
B)  Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $200,000. 
C)  Margie will owe the regular 1.45 percent Medicare tax on her entire wage income and the additional .9 percent Medicare tax only on her wage income in excess of $250,000. 
D)  Margie's employer is required to withhold both the regular Medicare tax but does not withhold the additional .9 percent Medicare tax.

Question 2

Which of the following statements regarding the home office deduction is true?

Accepted Answer

A)  In order to qualify for the deduction, a portion of the taxpayer's home must be used regularly and exclusively to meet with clients or customers. 
B)  A home office deduction is not allowed for using the home office for administrative or management activities only. 
C)  The home office deduction is limited to the taxable income of the business before the deduction. 
D)  A depreciation deduction is not allowed for a home office. 
A)  In order to qualify for the deduction, a portion of the taxpayer's home must be used regularly and exclusively to meet with clients or customers. 
B)  A home office deduction is not allowed for using the home office for administrative or management activities only. 
C)  The home office deduction is limited to the taxable income of the business before the deduction. 
D)  A depreciation deduction is not allowed for a home office.

Question 3

During 2018, Scott Howell received a salary of $135,000. The social security base amount for 2018 was $128,400. How much payroll tax should have been withheld from Scott's salary for 2018?

Accepted Answer

A)  $0 
B)  $10,328 
C)  $9,823 
D)  $9,919 
A)  $0 
B)  $10,328 
C)  $9,823 
D)  $9,919

Question 4

Loretta is the sole shareholder of Country Collectibles, a calendar year S corporation. Although Loretta spends at least 40 hours per week supervising Country Collectible's employees, she has never drawn a salary from the business. Country Collectibles has been in existence for five years and has earned a profit every year. 
-Loretta withdraws $100,000 cash from the S corporation each year. Which of the following statements accurately describes the tax consequences of these withdrawals?

Accepted Answer

A)  The withdrawals are nontaxable, with no risk that they could be recharacterized as taxable salary or dividend payments. 
B)  The withdrawals are considered taxable dividends to Loretta. 
C)  There is significant risk that the IRS could recharacterize the payments to Loretta as salary. Such treatment would increase taxable income for both Loretta and the S corporation. 
D)  There is significant risk that the IRS could recharacterize the payments to Loretta as salary. Such treatment would not change taxable income for Loretta and reduce taxable income of the S corporation. 
A)  The withdrawals are nontaxable, with no risk that they could be recharacterized as taxable salary or dividend payments. 
B)  The withdrawals are considered taxable dividends to Loretta. 
C)  There is significant risk that the IRS could recharacterize the payments to Loretta as salary. Such treatment would increase taxable income for both Loretta and the S corporation. 
D)  There is significant risk that the IRS could recharacterize the payments to Loretta as salary. Such treatment would not change taxable income for Loretta and reduce taxable income of the S corporation.

Question 5

The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.

Accepted Answer

A) True 
 B)False

Question 6

Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following statements about S corporations is true?

Accepted Answer

A)  An S corporation has unlimited liability. 
B)  An S corporation is a flow-through entity for federal income tax purposes. 
C)  S corporations can only have 75 shareholders. 
D)  S corporations can have several classes of stock. 
A)  An S corporation has unlimited liability. 
B)  An S corporation is a flow-through entity for federal income tax purposes. 
C)  S corporations can only have 75 shareholders. 
D)  S corporations can have several classes of stock.

Question 8

If a business is formed as an S corporation, its income may be subject to double taxation.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following items would be separately stated instead of included in ordinary income when reported by a partnership?

Accepted Answer

A)  Municipal bond interest income 
B)  Capital loss 
C)  Dividend income 
D)  All of the above items would be separately stated 
A)  Municipal bond interest income 
B)  Capital loss 
C)  Dividend income 
D)  All of the above items would be separately stated

Question 10

Which of the following amounts are not subject to self-employment tax?

Accepted Answer

A)  General partner's share of partnership income 
B)  Limited partner's share of partnership income 
C)  Sole proprietor's income from business activity 
D)  Guaranteed payment to general partner 
A)  General partner's share of partnership income 
B)  Limited partner's share of partnership income 
C)  Sole proprietor's income from business activity 
D)  Guaranteed payment to general partner

Question 11

Which of the following statements regarding sole proprietorships is false?

Accepted Answer

A)  A sole proprietorship has no legal identity separate from that of its owner. 
B)  Sole proprietorships are the most common form of business entity in the U.S. 
C)  The cash flow generated by a sole proprietorship belongs to the owner. 
D)  The assets and liabilities of a sole proprietorship are held in the name of the business, not the owner. 
A)  A sole proprietorship has no legal identity separate from that of its owner. 
B)  Sole proprietorships are the most common form of business entity in the U.S. 
C)  The cash flow generated by a sole proprietorship belongs to the owner. 
D)  The assets and liabilities of a sole proprietorship are held in the name of the business, not the owner.

Question 12

Bernard and Leon formed a partnership on January 1 with cash contributions of $600,000 and $200,000, respectively. The partners agree to share profits and losses in the ratio of their initial capital contributions. The partnership immediately borrowed $800,000. What is Bernard's tax basis in his partnership interest?

Accepted Answer

A)  $1,200,000 
B)  $600,000 
C)  $800,000 
D)  $1,400,000 
A)  $1,200,000 
B)  $600,000 
C)  $800,000 
D)  $1,400,000

Question 13

Carter's share of a partnership's operating loss is $17,200. His tax basis in his partnership interest before any adjustment for this loss is $26,000. If Carter has no excess business loss, he may deduct the full partnership loss on his individual tax return.

Accepted Answer

A) True 
 B)False

Question 14

Max is a 10% limited partner in LMN partnership. His adjusted basis in his partnership interest was $50,000 at the beginning of the current year. During the year, the partnership earned $100,000 of ordinary income, incurred a $5,000 capital loss, and paid $1,000 of nondeductible expenses. Max received a distribution of $2,000 from the partnership. Calculate Max's ending adjusted basis in his partnership interest.

Accepted Answer

A)  $142,000 
B)  $57,400 
C)  $57,500 
D)  $59,200 
A)  $142,000 
B)  $57,400 
C)  $57,500 
D)  $59,200

Question 15

Cramer Corporation and Mr Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. 
-What is Mr Chips' tax basis in its partnership interest?

Accepted Answer

A)  $500,000 
B)  $1,200,000 
C)  $850,000 
D)  $650,000 
A)  $500,000 
B)  $1,200,000 
C)  $850,000 
D)  $650,000

Question 16

A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.

Accepted Answer

A) True 
 B)False

Question 17

At the beginning of year 1, Paulina purchased a 25% general partner interest in Gamma Partnership for $25,000. Paulina's partnership Schedule K-1 for year 1 reported that her share of Gamma's debt at year-end was $10,000 and her share of ordinary loss was $5,000. On January 1, year 2, Paulina sold her interest to another partner for $22,000 cash (including relief of liabilities). Compute Paulina's gain or loss on the sale of her partnership interest.

Accepted Answer

A)  $3,000 loss 
B)  $8,000 loss 
C)  $2,000 gain 
D)  $0 gain or loss 
A)  $3,000 loss 
B)  $8,000 loss 
C)  $2,000 gain 
D)  $0 gain or loss

Question 18

William is a member of an LLC. His Schedule K-1 reported a $1,200 share of capital loss and a $3,000 share of Section 1231 gain. William recognized a $4,500 capital gain on the sale of marketable securities and a $15,000 Section 1231 loss on the sale of business equipment. What is the net effect of these gains and losses on William's taxable income?

Accepted Answer

A)  $3,300 net capital gain; $12,000 deductible net Section 1231 loss 
B)  $4,500 net capital gain; $12,000 deductible net Section 1231 loss 
C)  $4,500 net capital gain; $15,000 deductible net Section 1231 loss 
D)  $3,300 net capital gain; -0- deductible net Section 1231 loss 
A)  $3,300 net capital gain; $12,000 deductible net Section 1231 loss 
B)  $4,500 net capital gain; $12,000 deductible net Section 1231 loss 
C)  $4,500 net capital gain; $15,000 deductible net Section 1231 loss 
D)  $3,300 net capital gain; -0- deductible net Section 1231 loss

Question 19

A limited liability company with more than one member is generally considered a partnership for federal tax purposes.

Accepted Answer

A) True 
 B)False

Question 20

A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.

Accepted Answer

A) True 
 B)False

During the current year, Margie earned wage income of $300,000. If Margie is single, which of the following statements regarding her Medicare tax liability is true?

Which of the following statements regarding the home office deduction is true?

During 2018, Scott Howell received a salary of $135,000. The social security base amount for 2018 was $128,400. How much payroll tax should have been withheld from Scott's salary for 2018?

The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.

Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.

Which of the following statements about S corporations is true?

If a business is formed as an S corporation, its income may be subject to double taxation.

Which of the following items would be separately stated instead of included in ordinary income when reported by a partnership?

Which of the following amounts are not subject to self-employment tax?

Which of the following statements regarding sole proprietorships is false?

Carter's share of a partnership's operating loss is $17,200. His tax basis in his partnership interest before any adjustment for this loss is $26,000. If Carter has no excess business loss, he may deduct the full partnership loss on his individual tax return.

Cramer Corporation and Mr Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. -What is Mr Chips' tax basis in its partnership interest?

A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.

A limited liability company with more than one member is generally considered a partnership for federal tax purposes.

A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes as Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income from Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters

Exam 10: Sole Proprietorships

During the current year, Margie earned wage income of $300,000. If Margie is single, which of the following statements regarding her Medicare tax liability is true?

Which of the following statements regarding the home office deduction is true?

During 2018, Scott Howell received a salary of $135,000. The social security base amount for 2018 was $128,400. How much payroll tax should have been withheld from Scott's salary for 2018?

The FICA taxes authorized by the Federal Insurance Contribution Act is imposed upon all of the employee's wages for the year.

Partners receiving guaranteed payments are not required to pay self-employment tax on such payments.

Which of the following statements about S corporations is true?

If a business is formed as an S corporation, its income may be subject to double taxation.

Which of the following items would be separately stated instead of included in ordinary income when reported by a partnership?

Which of the following amounts are not subject to self-employment tax?

Which of the following statements regarding sole proprietorships is false?

Carter's share of a partnership's operating loss is $17,200. His tax basis in his partnership interest before any adjustment for this loss is $26,000. If Carter has no excess business loss, he may deduct the full partnership loss on his individual tax return.

Cramer Corporation and Mr Chips formed a general partnership. Cramer contributed $500,000 cash, and Mr Chips contributed a building with a $500,000 FMV and $300,000 tax basis. The partnership immediately borrowed $700,000 of recourse debt. -What is Mr Chips' tax basis in its partnership interest?

A shareholder in an S corporation includes in tax basis his or her share of the corporation's liabilities.

A limited liability company with more than one member is generally considered a partnership for federal tax purposes.

A major advantage of an S corporation is the ability to specially allocate losses to specific members of the company.

Taxes and Taxing Jurisdictions

Policy Standards for a Good Tax

Taxes as Transaction Costs

Maxims of Income Tax Planning

Tax Research

Taxable Income from Business Operations

Property Acquisitions and Cost Recovery Deductions

Property Dispositions

Nontaxable Exchanges

The Corporate Taxpayer

The Choice of Business Entity

Jurisdictional Issues in Business Taxation

The Individual Tax Formula

Compensation and Retirement Planning

Investment and Personal Financial Planning

Tax Consequences of Personal Activities

The Tax Compliance Process

Filters