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WorksheetsWEEK 2
Total questions: 66
Worksheet time: 1hrs 5mins
Which of the following is the characteristic of a corporation?
A corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that individuals possess.
An important element of a corporation is limited liability.
Corporations are not always for profit.
All of the above
Which of the following statements is not true with regards to FICA?
The employee must file returns and deposit the withheld income tax and the FICA tax with an authorized commercial bank depository or a Federal Reserve bank.
The employee portion must be withheld by the employer corporation from each payment of taxable wages until a designated amount of taxable wages has been reached.
FICA requires both employers and employees to contribute a stated percentage of wages paid in order to provide old age, medical, survivors and disability benefits to employees.
The corporation is required to annually furnish each employee with a statement of wages paid and taxes withheld during the previous calendar year.
Which of the following statements is not true?
Property taxes are levied upon the ownership or use of property or upon the property itself.
A corporation will automatically be subject to the state income tax of its state of incorporation if it does business in or has income derived from that state.
A state may include the corporation’s entire capital stock or income, even if the corporation is engaged in business and employing its capital primarily in a foreign state.
State corporate income taxes are taxes imposed upon the gross amount involved in certain transactions.
Statement 1: A corporate taxpayer is required to file an annual tax return (generally Form 1120) by the 15th day of the fourth month following the close of its tax year.
Statement 2: A taxpayer can obtain an additional six-month extension of time to file its tax return.
Only statement 1 is true
All statements are true
Only statement 2 is true
All statements are false
Which of the following best describe a S-corporation?
Subject to double taxation
Does not have to pay corporate income taxes
Must file a federal tax return and pay federal taxes on income it earned
None of the above
Which statement is false?
Payments for the services of a child under age 21 who works for his or her parent in a trade or business are not subject to Federal Unemployment Tax Act (FUTA) tax.
The wages for the services of a parent employed by his or her child in a trade or business are subject to income tax withholding and social security and Medicare taxes.
The wages for the services of a parent employed by his or her child in a trade or business are subject to income tax withholding, social security, Medicare, and FUTA tax.
Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.
You may use the cost incurred or the fair market value to determine the value of fringe benefit.
True
False
Who among the following are considered as statutory employees?
An individual who works at the factory on materials or goods that you supply and that must be returned to you or to a person you name, if you also furnish specifications for the work to be done.
They do not have a substantial investment in the equipment and property used to perform the services.
Both A and B
None of the statements
Which of the following is true with regards to Leased Property?
If the lessee makes permanent improvements to lease property, then the cost can be depreciated with the Modified Accelerated Cost Recovery System (MACRS) depreciation over the recovery period of the improvement.
If it is not clear from the contract whether the agreement is a lease or a conditional sales contract, then another determining factor is consent.
Improvements to leaseholds, restaurants, and retail establishments, by either the landlord or tenant, can be depreciated over 39- year class if the leasehold improvements are for interior of the building.
If the lease is for the current tax year, then any premium paid to obtain immediate possession is nondeductible.
Motor vehicle rentals for less than X days are immediately deductible. Lease terms exceeding X days are deductible if the car was used entirely for business. What is X?
20
25
15
30
The method of accounting for leases exceeding X may have to use the accrual method of accounting, regardless of the accounting method otherwise used if the rents increase or decrease. What is X?
$100,000
$200,000
$250,000
$300,000
It is the annual deduction that allows you to recover the cost or other basis of your business or investment property over a certain number of years
Depletion
Depreciation
Amortization
Correcting Errors
Which of the following is/are considered as Section 179 property? Select one or more:
Single purpose agricultural (livestock) or horticultural structure
Storage facilities used in connection with distributing petroleum
Property used by a tax-exempt organization used for trade or business
Off the shelf computer software
Property held for Investment
A start-up cost is amortizable if it meets which among the following tests? Select one or more:
It is a cost you pay or incur before the day your active trade or business begins.
It is a cost you could deduct if you paid or incurred it to operate an existing passive trade or business.
It is a cost you could deduct if you paid or incurred it to operate an existing active trade or business.
It is a cost you pay or incur before the day your passive trade or business begins.
Which of the following is an organizational non-qualifying cost?
The cost of organizational meetings
Costs associated with the transfer of assets to the corporation
Legal fees for services incident to the organization of the partnership
State incorporation fees
An individual can choose an amortization period for start-up costs that is different from the period you choose for organizational costs, as long as both aren't less than the applicable amortization period.
True
False
To make an election to amortize start-up or organizational costs, you must complete and attach X to your return for the first tax year you are in business. What is X?
Form 4868
Form 1065
Form 1040
Form 4562
Statement 1: Depletion is the using up of natural resources extracted from a mineral property by mining, drilling, quarrying stone, or cutting timber.
Statement 2: You must reduce the basis of your property by the depletion allowed or allowable, whichever is lower, but not below zero.
Only Statement 1 is true
Only Statement 2 is not false
Both statements are true
None of the statements is true
Unless a person is an independent producer or royalty owner, they generally cannot use this method of depletion for oil and gas wells.
Mineral Property
Depreciation
Percentage depletion
Cost depletion
The gross income from the property that was converted or manufactured into refined product or transported before sale.
Representative Market or Field Price
Floor Price
Net Profit
Modified Adjusted Gross Income
Statement 1: Regulated natural gas qualifies for a percentage depletion rate of 22%.
Statement 2: Natural gas sold under a fixed contract qualifies for a percentage depletion rate of 22%.
Statement 3: Qualified natural gas from geopressured brine is eligible for a percentage depletion rate of 22%
Only Statement 1 is true; Statement 2 and 3 are false.
All statements are true.
Statement 1 and 2 are not false: Statement 3 is not true.
None of the statements is true.
Which of the following is/are the common ways to correct items on a tax return? Select one or more:
Get examined by the IRS
File an amended tax return
Change the accounting method
Change the recognition principle
Depletion of timber can be determined using the cost method or percentage depletion. Depletion takes place when you cut standing timber.
True
False
If a taxpayer didn’t deduct a bad debt on your original return for the year it became worthless, they can file a claim for a credit or refund
True
False
Statement 1: If an individual doesn’t have a regular or main place of business or post of duty and there is no place where they regularly live, they are considered an itinerant (a transient) and their tax home is wherever they work.
Statement 2: If an individual doesn’t have a regular or a main place of business because of the nature of their work, then their tax home may be the place where they regularly live.
Both statements are true
Statement 1 is true
Statement 2 is true
None of the statements are true
For a person to qualify for the exemption for federal crime investigations or prosecutions, the Attorney General (or his/her designee) must certify that they are travelling: Choose the incorrect answer.
To investigate, prosecute, or provide support services for the investigation or prosecution of a federal crime
In a temporary duty status
For the federal government
Subject to 1-year rule
An individual can deduct no more than X for business gifts they give directly or indirectly to each person during their tax year. What is X?
$25
$20
$30
$55
A person can use the standard meal allowance to figure the cost of their meals when they travel for medical or charitable purposes
True
False
George, a regular employee of Dos Company has incurred the following expenses related to the car he utilized entirely for business:
Gas: $50 Repairs: $30 Insurance: $100 Registration fees: $20
How much is the total expense deductible?
$200
$80
$100
$170
Statement 1: A taxpayer can deduct their self-employed car expenses on Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship) or Schedule F (Form 1040), Profit or Loss From Farming if they're a farmer.
Statement 2: If they're an Armed Forces reservist, a qualified performing artist, or a fee-basis state or local government official, complete Form 2106, Employee Business Expenses to figure the deductions for their car expenses.
Both statements are true
Only Statement 1 is true
Statement 1 is true; Statement 2 is false
None of the statements are true
Which of the following interests are deductible as itemized deduction on
Schedule A?
Investment interest (limited to your net investment income)
Qualified mortgage interest including points (if you're the buyer)
Non-farm business interest
Interest incurred to produce rents or royalties
Ana and Mark bought their house in Los Angeles which became their main home. They also use their other home in New York for vacation. The couple pays $5,000 for the mortgage interest on their main home in Los Angeles and $6,000 mortgage interest on New York home. The seller paid $1,000 of points for them in acquiring Los Angeles home. What would be included as deductible mortgage interest?
$12,000
$6,000
$11,000
$7,000
Statement 1: Amounts paid for health insurance coverage from retirement plan distributions that were nontaxable because you are a retired public safety officer can’t be used to figure the deduction.
Statement 2: Deductible premiums include malpractice insurance that covers your personal liability for professional negligence resulting in injury or damage to patients or clients.
Only Statement 1 is true
Both Statements are true
Only Statement 2 is true
None of the statements are true
Which of the following is not a nondeductible premium:
Loss earnings due to sickness or disability
Insurance that covers fire, storm, theft, accident, or similar losses
Self-insurance reserve funds
Insurance to secure a loan
How much is the deduction limitation for state and local income taxes?
$10,000
$25,000
$100,000
$20,000
Statement 1: Casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden. One that is swift, gradual or progressive.
Statement 2: Casualty is the damage, destruction, or loss of property resulting from an identifiable event that is unexpected. One that is ordinarily unanticipated and unintended.
Statement 3: Casualty is the damage, destruction, or loss of property resulting from an identifiable event that is unusual. One that isn’t a day-to-day occurrence and that isn’t typical of the activity in which you are engaged.
Statement 1 is false; Statement 2 and 3 are true
All statements are true
Statement 1 is true; Statement 2 and 3 are false
None of the statements are true
For a theft loss, a person should be able to show all the following as a proof except:
When they discovered their property was missing.
If they leased the property from someone else, that they were contractually liable to the owner for the damage.
That they were the owner of the property, and that property was stolen.
Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery.
Which of the following statements does not describe theft?
The taking of money or property through fraud or misrepresentation is theft if it is illegal under state or local law.
A theft is the taking and removing of money or property with the intent to deprive the owner of it.
You need to show a conviction for theft.
The taking of property must be illegal under the law of the state where it occurred, and it must have been done with criminal intent.
Which of the following is not eligible/ deductible for General Business Credits
A company with 25 full-time equivalent employees with an average wage of $40,000 a year for healthcare
Paid or accrued foreign taxes to a foreign country that are subject to U.S. tax on the same income
Research in the social sciences, art, or humanities
A small business that earns $1 million or less on qualified expenses and has 30 full time employees
The qualified business income (QBI) deduction may be taken by eligible taxpayers, including individuals and some trusts and estates
True
False
For most taxpayers on 2018-2025, which of the following losses should generally be part of your deduction to have a NOL?
Work as an employee
Casualty and theft Losses resulting from federally declared disaster
Travel expense
Moving Expense
Which of the following statements is false?
If your deductions for the year are more than your income for the year, you may have a NOL.
You may carry back the entire amount of the NOL to 5 years before the NOL year.
Partners or shareholders of Partnership or S Corp can use their separate shares of their business income and business deductions to figure their individual NOLs.
Partnership and S Corporations generally can use an NOL.
On which section of the M-3 would a reconciliation be given of interest income reported on the financial statements vs. the tax return?
Part I
Part II
Part III
Part IV
New Company paid $5,000 in life insurance premiums on behalf of its CEO. The company is the beneficiary on the policy. What is the nature of the difference created by the premiums?
Permanent and favorable
Temporary and unfavorable
Permanent and unfavorable
Temporary and favorable
Which of the following items would not likely be needed to identify a client’s temporary differences for the current tax year?
Client records of taxable revenue not reported on books.
Recent FASB Accounting Standards Update.
Financial statements (book income).
Client records that detail sale of capital assets during the year
Which of the following is not an additional filing requirement of Schedule M-3 as compared to Schedule M-1?
Reconciliation schedule listing which tax year temporary differences expect to be reversed.
Designating book-tax differences as permanent or temporary.
Questions giving more information regarding the prepared income statement of the business.
Reconciliation of book income per financial statements with book income reported on the tax return (per Schedule M-3), which takes into account entities not included in the consolidated tax return.
Which of the following must a corporate taxpayer do to properly reconcile its financial books and records and income tax return?
A corporate taxpayer with deferred tax liabilities of $10 million or more on the last day of the tax year is required to file Schedule M-3.
A corporate taxpayer with total assets of $10 million or more on the last day of the tax year is required to file Schedule M-3 instead of Schedule M-1
A corporate taxpayer currently under audit by the IRS is required to file Schedule M-3
A corporate taxpayer with total assets of $10 million or more on the last day of the tax year is required to file Schedule M-3 along with Schedule M-1.
Which of the following items should be adjusted on the Schedule M-1 to reconcile book income to taxable income?
Corporate bond interest
Ending balance of retained earnings
Penalties and fines
Cash distributions to shareholders
If a temporary difference causes lower book income than tax income, what type of deferred tax account will be created and recorded?
A deferred tax asset is created and should be recorded on the balance sheet as a future tax benefit.
A deferred tax revenue is created and recorded as an increase to revenue on the income statement.
A deferred tax liability is created and recorded on the balance sheet as future taxes owed
A deferred tax expense is created and is recorded as an increase to expense on the income statement.
When is an S corporation required to file Schedule M-1 to properly reflect reconciliation between the financial books and records and the income tax return?
S corporations whose gross receipts and total assets are greater than or equal to $250,000
Schedule M-1 is required when Form K-1’s are filed with the corporation’s return
Schedule M-1 is required whenever the corporation has a book-tax difference.
Schedule M-1 is required when the corporation’s gross receipts are greater than $250,000 or total assets at greater than $1 million.
To reconcile net income (book) to taxable income, the following must be adjusted for book-tax differences: officer’s life insurance premium and excess tax depreciation. What is the correct approach for this reconciliation?
The officer’s life insurance expense reduces net income but is not deductible for tax purposes, so it should be subtracted from net income. Excess tax depreciation is deductible on the tax return but is not an expense on the income statement. It should be added back to net income.
The officer’s life insurance expense increases net income and is deductible for tax purposes, so it should be subtracted from net income. Excess tax depreciation is not deductible on the tax return but is an expense on the income statement. It should be added back to net income.
The officer’s life insurance expense increases net income but is not deductible for tax purposes, so it should be deducted from net income. Excess tax depreciation is deductible on the tax return and is a contra expense on the income statement. It should be added back to net income.
The officer’s life insurance expense reduces net income but is not deductible for tax purposes, so it should be added back to net income. Excess tax depreciation is deductible on the tax return but is not an expense on the income statement. It should be deducted from net income.
This Form is issued by the corporation to each person to whom they have: (1) paid dividends and other distributions on stock of $10 or more, (2) withheld and paid any foreign tax on dividends and other distributions on stock, (3) withheld any federal income tax on dividends under the backup withholding rules, OR (4) paid $600 or more as part of a liquidation.
Form 1099-INT
Form 1099-G
Form 1099-DIV
Form 1099-B
Copper Corporation had the following income and expenses during its calendar year of 2021:
$250,000 in income from operations
$175,000 in expenses from operations
$15,000 in qualifying dividends from domestic corporations (10% ownership)
What is Copper Corporation’s dividends-received deduction for 2021?
$10,500
$7,500
None of the answer choices are correct
$15,000
S1: Distributions made from current or accumulated E&Ps are dividends to the shareholder(s).
S2: If the corporation does not have adequate E&Ps, the excess amount distributed is a return of capital and therefore it: (1) reduces the adjusted basis of the shareholder’s stock, and (2) once the basis is reduced to zero, the shareholder realizes a gain (usually a capital gain) from the distribution).
Both are True
Both are False
S1 is False, S2 is True
S1 is True, S2 is False
This is filed for automatic extension of the filling date, but does not extend the time for paying the tax due on the return.
Form 7004
Form 1120
Form 1065
Form 4868
The Jonas Corporation forgot to request an extension and filed its Form 1120 late for the calendar year 2021. It paid the $500 balance due when it filed the return on July 22, 2022. The delinquency penalty for late filing will be:
$25
$100
$500
$435
Heron, Inc. made a distribution of real estate with an FMV of $100,000 to its only shareholder, Jennifer, on 12/31/21. Heron’s basis in the property was $60,000. Current-year earnings and profits of Heron (before the distribution) are $10,000 and it has accumulated $20,000 earnings and profits from prior years. Jennifer’s basis in her Heron stock is $5,000. What will be the tax effect to Jennifer?
30,000 dividend and 25,000 capital gain
60,000 dividend
70,000 dividend, 5,000 return of capital and 25,000 capital gain
100,000 dividend
S1: A corporation can deduct capital losses up to the amount of its capital gains.
S2: If the amount of capital loss is larger than the capital gains the difference can reduce the ordinary income.
S1 is True, S2 is False
S1 is False, S2 is True
Both are True
Both are False
Olympic Corporation distributed real estate with an FMV of 500,000 to its sole shareholder, Joshua. Olympic’s basis in real estate is $400,000. What is the effect of the distribution to Olympic and what is Joshua’s basis in real estate?
$0 gain/loss to Olympic; $500,000 basis to Joshua
$0 gain/loss to Olympic; $400,000 basis to Joshua
$100,000 gain to Olympic; $500,000 basis to Joshua
$100,000 gain to Olympic; $400,000 basis to Joshua
If a corporation’s tax year ends December 31, It generally must file its income tax return by:
June 15 of the following year
April 15 of the following year
March 15 of the following year
October 15 of the following year
A calendar-year corporation must file its income tax return by the 15th day of the 4th month after the end of its tax year.
A new corporation filing a short-period return must generally file by the 15th day of the 4th month after the short period ends.
Both are True
Both are False
S1 is True, S2 is False
S1 is False, S2 is True
When considering whether to file an amended return for business income, a taxpayer should understand that an error in an entity’s return can result in:
An error in all the partners’/owners’ returns.
An error in all of the employees’ returns.
A $10,000 fine from the government.
A $5,000 fine from the government.
A partnership amended return may be filed on which of the following forms?
Form 1040
Form 1120
Form 1065X
Form 1040X
Which of the following is true regarding the obligations of taxpayers and advisors with respect to amended returns?
Upon discovering an error in a taxpayer’s return, the tax advisor is obligated to file an amended return on the taxpayer’s behalf.
Upon discovering an error, taxpayers have no obligation to amend a tax return, but tax advisors must advise their clients of the error and the consequences for not correcting it.
Upon discovering an error, taxpayers are not obligated to amend their return, and tax advisors are not obligated to advise their client of a discovered error.
Upon discovering an error, taxpayers are obligated to amend their return, but tax advisors need not advise their clients of the error.
What is the primary difference between a superseding return and an amended return?
An omission of an allowable deduction may only be reported using an amended return.
Amended returns are filed before the extended due date of the originally filed return.
An omission of taxable income may only be reported using a superseding return.
Superseding tax returns are filed before the extended due date of the originally filed return.
A qualified amended return (QAR):
Replaces the taxpayer’s original return.
Is generally filed after the IRS begins investigating the original return.
May reduce a taxpayer’s penalty exposure.
Nullifies the filing of a fraudulent return.
