ABA Taxation and Compliance 2 — Questions and Answers
Question 1: A sole proprietor earned $95,000 in net self-employment income. What is the deductible portion of self-employment tax on their Form 1040?
- One-half of the calculated self-employment tax (Correct answer)
- The full self-employment tax amount
- 15.3% of net earnings
- Nothing; self-employment tax is not deductible
Correct answer: One-half of the calculated self-employment tax
Self-employed individuals may deduct one-half of their self-employment tax as an above-the-line deduction on Form 1040.
Question 2: Which IRS form is used by partnerships to report income, deductions, and credits to the IRS?
- Form 1065 (Correct answer)
- Form 1120
- Form 1041
- Form 1120-S
Correct answer: Form 1065
Form 1065 (U.S. Return of Partnership Income) is the annual information return filed by partnerships.
Question 3: Under the TCJA, the maximum Section 179 deduction for qualifying business property placed in service in 2023 is approximately:
- $1,160,000 (Correct answer)
- $500,000
- $750,000
- $2,000,000
Correct answer: $1,160,000
The Section 179 deduction limit was $1,160,000 for tax year 2023, indexed annually for inflation.
Question 4: A calendar-year C corporation's federal income tax return (Form 1120) is due:
- April 15, with an extension to October 15 (Correct answer)
- March 15, with an extension to September 15
- April 15, with an extension to September 15
- March 15, with an extension to October 15
Correct answer: April 15, with an extension to October 15
C corporation Form 1120 is due the 15th day of the 4th month after year-end (April 15) with a 6-month extension to October 15.
Question 5: Which of the following is an example of a regressive tax?
- A flat sales tax on groceries (Correct answer)
- A progressive federal income tax
- An estate tax with exemptions
- A corporate alternative minimum tax
Correct answer: A flat sales tax on groceries
A flat sales tax is regressive because lower-income individuals spend a higher percentage of their income on taxable goods.
Question 6: When a business converts from a sole proprietorship to a single-member LLC, the default federal tax classification is:
- Disregarded entity (taxed as a sole proprietorship) (Correct answer)
- C corporation
- S corporation
- Partnership
Correct answer: Disregarded entity (taxed as a sole proprietorship)
A single-member LLC is treated as a disregarded entity for federal tax purposes unless it elects to be taxed as a corporation.
Question 7: Which penalty applies when an employer fails to timely deposit federal payroll taxes?
- Failure-to-deposit penalty (2%–15% based on lateness) (Correct answer)
- Failure-to-file penalty of 5% per month
- Accuracy-related penalty of 20%
- Civil fraud penalty of 75%
Correct answer: Failure-to-deposit penalty (2%–15% based on lateness)
The IRS imposes a tiered failure-to-deposit penalty ranging from 2% (1-5 days late) up to 15% (10+ days after notice) on undeposited payroll taxes.
ABA Taxation and Compliance 2
A sole proprietor earned $95,000 in net self-employment income.
What is the deductible portion of self-employment tax on their Form 1040?