AFTR AFTR Business Tax Basics 2

Question 1

A partnership reports its income, deductions, and credits to partners using which form?

Accepted Answer

Form 1065 with Schedule K-1

Answer

Partnerships file Form 1065 as an informational return and issue Schedule K-1 to each partner showing their distributive share of income, deductions, and credits.

Question 2

An S corporation shareholder who is also an employee must receive:

Accepted Answer

A reasonable salary subject to payroll taxes before taking distributions

Answer

S corporation shareholder-employees must receive reasonable compensation (salary) subject to FICA taxes; the IRS scrutinizes attempts to avoid payroll taxes by taking only distributions.

Question 3

Business meals that are 50% deductible must be:

Accepted Answer

Ordinary and necessary, with a business purpose, and not solely for entertainment

Answer

Business meals are 50% deductible if they are ordinary and necessary, have a bona fide business purpose, and are not lavish or extravagant.

Question 4

Startup costs that exceed the $5,000 first-year deduction limit must be:

Accepted Answer

Amortized over 180 months (15 years) beginning with the month the business starts

Answer

Startup costs exceeding the $5,000 immediate deduction (which phases out above $50,000 in total startup costs) must be amortized over 180 months starting when the business begins.

Question 5

Which of the following is NOT a deductible business expense for a sole proprietor?

Accepted Answer

Personal life insurance premiums

Answer

Personal life insurance premiums are a personal expense and are not deductible as a business expense on Schedule C.

AFTR - Annual Federal Tax Refresher Practice Test

AFTR - Annual Federal Tax Refresher Practice Test

AFTR AFTR Business Tax Basics 2