AFTR Business Tax Basics Flashcards

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

Answer: Form 1065 with Schedule K-1

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.

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

Answer: A reasonable salary subject to payroll taxes before taking distributions

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.

Business meals that are 50% deductible must be:

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

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

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

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

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.

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

Answer: Personal life insurance premiums

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

The Section 199A qualified business income (QBI) deduction generally allows eligible pass-through owners to deduct up to what percentage of qualified business income?

Answer: 20%

The Section 199A deduction allows eligible self-employed individuals and pass-through entity owners to deduct up to 20% of qualified business income, subject to limitations.