AFTR AFTR Business Tax Basics 1 — Questions and Answers
Question 1: A sole proprietor reports business income and expenses on which schedule attached to Form 1040?
- Schedule A
- Schedule B
- Schedule C (Correct answer)
- Schedule E
Correct answer: Schedule C
Schedule C, Profit or Loss from Business, is used by sole proprietors to report gross income, deductible business expenses, and net profit or loss.
Question 2: Under the cash method of accounting, a business recognizes income when:
- An invoice is issued to the customer
- Payment is constructively or actually received (Correct answer)
- A contract is signed
- Goods are shipped
Correct answer: Payment is constructively or actually received
Under the cash method, income is recognized when payment is actually or constructively received, and expenses are deducted when actually paid.
Question 3: Section 179 expensing allows a business to:
- Deduct the full cost of qualifying business property in the year it is placed in service (Correct answer)
- Amortize startup costs over 15 years
- Exclude gain on the sale of business real estate
- Defer depreciation recapture to a later year
Correct answer: Deduct the full cost of qualifying business property in the year it is placed in service
Section 179 lets businesses immediately expense (deduct) the cost of qualifying depreciable business property placed in service during the tax year, up to the annual dollar limit.
Question 4: What is the primary purpose of Form 1099-NEC?
- To report nonemployee compensation paid of $600 or more to independent contractors (Correct answer)
- To report interest income over $10
- To report distributions from retirement accounts
- To report proceeds from broker transactions
Correct answer: To report nonemployee compensation paid of $600 or more to independent contractors
Form 1099-NEC is used to report nonemployee compensation of $600 or more paid to individuals who are not employees, such as independent contractors.
Question 5: Bonus depreciation under current law generally allows businesses to deduct what percentage of the cost of qualifying new or used property in the first year?
- 50%
- 75%
- 100% (Correct answer)
- 200%
Correct answer: 100%
The Tax Cuts and Jobs Act allowed 100% bonus depreciation for qualifying property placed in service after September 27, 2017, though this percentage phases down after 2022.
Question 6: A taxpayer who uses part of their home exclusively and regularly for business may be able to deduct home office expenses using which form?
- Form 4562
- Form 8829 (Correct answer)
- Schedule E
- Form 2106
Correct answer: Form 8829
Form 8829, Expenses for Business Use of Your Home, is used to calculate and claim home office deductions for self-employed taxpayers using the regular method.
AFTR AFTR Business Tax Basics 1
A sole proprietor reports business income and expenses on which schedule attached to Form 1040?