Bcom Bachelor of Commerce Bachelor of Commerce: Income Tax Laws 2 — Questions and Answers
Question 1: Under the US tax code, which filing status generally results in the lowest tax liability for an eligible taxpayer?
- Single
- Married Filing Jointly (Correct answer)
- Head of Household
- Married Filing Separately
Correct answer: Married Filing Jointly
Married Filing Jointly typically provides the widest tax brackets and most favorable rates, resulting in the lowest overall tax liability for eligible couples.
Question 2: What is the term for the reduction in the value of a tangible business asset over its useful life for tax purposes?
- Amortization
- Depletion
- Depreciation (Correct answer)
- Impairment
Correct answer: Depreciation
Depreciation is the systematic allocation of a tangible asset's cost over its IRS-prescribed useful life, reducing taxable income each year.
Question 3: A taxpayer sells stock held for 14 months at a $10,000 gain. How is this gain classified for federal income tax purposes?
- Ordinary income
- Short-term capital gain
- Long-term capital gain (Correct answer)
- Passive income
Correct answer: Long-term capital gain
Assets held more than 12 months qualify as long-term capital gains, taxed at preferential rates of 0%, 15%, or 20% depending on income.
Question 4: Which of the following is NOT a requirement to claim the Earned Income Tax Credit (EITC)?
- Must have earned income
- Must meet income limits
- Must be at least 25 years old if no qualifying child
- Must own a primary residence (Correct answer)
Correct answer: Must own a primary residence
The EITC has no homeownership requirement; eligibility is based on earned income, filing status, investment income limits, and qualifying children.
Question 5: Under IRC Section 179, what is the primary tax benefit for businesses purchasing qualified property?
- A tax credit equal to 10% of the purchase price
- Immediate expensing of the full cost in the year of purchase (Correct answer)
- A 5-year accelerated depreciation schedule
- Exemption from state and local taxes on the asset
Correct answer: Immediate expensing of the full cost in the year of purchase
Section 179 allows businesses to immediately deduct the full cost of qualifying property in the year it is placed in service, subject to annual dollar limits.
Question 6: What is the Self-Employment (SE) tax rate applied to net self-employment income?
- 7.65%
- 12.4%
- 15.3% (Correct answer)
- 21%
Correct answer: 15.3%
The SE tax rate is 15.3%, combining 12.4% for Social Security and 2.9% for Medicare, covering both the employee and employer shares.
Question 7: Which of the following best describes the 'step-up in basis' rule at death?
- Heirs inherit the decedent's original purchase price as their cost basis
- Heirs receive a basis equal to the asset's fair market value at the date of death (Correct answer)
- The estate must pay capital gains tax before transferring assets to heirs
- Inherited assets are always tax-free regardless of subsequent gain
Correct answer: Heirs receive a basis equal to the asset's fair market value at the date of death
Under the step-up in basis rule, inherited assets receive a new cost basis equal to the fair market value on the decedent's date of death, eliminating unrealized gains accrued during the decedent's lifetime.
Bcom Bachelor of Commerce Bachelor of Commerce: Income Tax Laws 2
Under the US tax code, which filing status generally results in the lowest tax liability for an eligible taxpayer?