Bcom Bachelor of Commerce Bachelor of Commerce: Income Tax Laws 4

Question 1

Under the Alternative Minimum Tax (AMT) system, which of the following is a common preference item that can trigger AMT liability?

Accepted Answer

Accelerated depreciation on assets under MACRS

Answer

Accelerated depreciation under MACRS can be an AMT preference item; for AMT purposes, slower depreciation methods are required, increasing the AMT income base.

Question 2

A sole proprietor reports net profit on which schedule attached to Form 1040?

Accepted Answer

Schedule C

Answer

Schedule C (Profit or Loss from Business) is used by sole proprietors to report business income and expenses, with net profit flowing to Form 1040.

Question 3

Which of the following is an 'above-the-line' deduction that reduces AGI?

Accepted Answer

Student loan interest deduction

Answer

Student loan interest (up to $2,500) is an above-the-line deduction, meaning it reduces gross income to arrive at AGI without requiring the taxpayer to itemize.

Question 4

What is the general federal income tax treatment of municipal bond interest received by an individual taxpayer?

Accepted Answer

Excluded from federal gross income

Answer

Interest income from qualifying state and local (municipal) bonds is generally excluded from federal gross income under IRC §103.

Question 5

Under the 'passive activity loss' (PAL) rules, losses from passive activities can generally be deducted only against:

Accepted Answer

Passive income from other passive activities

Answer

IRC §469 limits passive activity losses to offset only passive activity income; excess losses are suspended and carried forward to future years.

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Practice Test

Bcom Bachelor of Commerce Bachelor of Commerce: Income Tax Laws 4