Accounting Online Program US Tax Accounting 2 — Questions and Answers
Question 1: A C-corporation's federal income tax is paid by:
- Its shareholders on their personal returns
- The corporation itself as a separate taxable entity (Correct answer)
- The IRS on behalf of shareholders
- Both corporation and shareholders equally
Correct answer: The corporation itself as a separate taxable entity
A C-corporation is a separate taxable entity that pays corporate income tax, and shareholders also pay tax on dividends, resulting in double taxation.
Question 2: Which entity type avoids corporate double taxation by passing income through to owners' personal returns?
- C-corporation
- S-corporation (Correct answer)
- Public company
- LLC taxed as C-corp
Correct answer: S-corporation
An S-corporation is a pass-through entity where income, losses, and credits flow through to shareholders' personal tax returns, avoiding corporate-level tax.
Question 3: What is the purpose of Form W-2 in US tax accounting?
- To report interest income from a bank
- To report self-employment income
- To report wages, salary, and taxes withheld by an employer (Correct answer)
- To report capital gains from stock sales
Correct answer: To report wages, salary, and taxes withheld by an employer
Form W-2 is issued by employers to employees and reports annual wages, tips, and amounts withheld for federal, state, and FICA taxes.
Question 4: Depreciation for tax purposes under the MACRS system refers to:
- Modified Accelerated Cost Recovery System (Correct answer)
- Mandatory Accounting Cost Reporting Standard
- Multiple Asset Class Revaluation System
- Minimum Accrual Calculation for Revenue Standards
Correct answer: Modified Accelerated Cost Recovery System
MACRS (Modified Accelerated Cost Recovery System) is the depreciation method mandated by the IRS for most tangible business assets placed in service after 1986.
Question 5: What is a net operating loss (NOL) in US tax law?
- A loss on the sale of investments
- When deductions exceed gross income from business operations (Correct answer)
- A penalty assessed by the IRS for underpayment
- An overpayment of estimated taxes
Correct answer: When deductions exceed gross income from business operations
An NOL occurs when a business's allowable deductions exceed its gross income for the tax year, and it may be carried forward to reduce future taxable income.
Question 6: Self-employment tax in the US covers which programs?
- Medicare only
- Social Security and Medicare (Correct answer)
- Federal and state income taxes
- Unemployment insurance
Correct answer: Social Security and Medicare
Self-employment tax covers both Social Security (12.4%) and Medicare (2.9%), which equals the combined employer and employee FICA contributions that salaried employees split with their employers.
Accounting Online Program US Tax Accounting 2
A C-corporation's federal income tax is paid by: