CAT Accounting Technician Taxation & Regulatory Compliance 2 — Questions and Answers
Question 1: A self-employed consultant earned $85,000 in net profit. What is the deductible portion of self-employment tax when calculating adjusted gross income?
- 100% of SE tax paid
- 50% of SE tax paid (Correct answer)
- 7.65% of net earnings
- No deduction is allowed
Correct answer: 50% of SE tax paid
Self-employed individuals may deduct 50% of self-employment tax paid when calculating their adjusted gross income.
Question 2: Which depreciation method is NOT allowed under MACRS for most personal property placed in service after 1986?
- 200% declining balance
- 150% declining balance
- Straight-line
- Sum-of-the-years'-digits (Correct answer)
Correct answer: Sum-of-the-years'-digits
MACRS does not include sum-of-the-years'-digits; it uses 200% DB, 150% DB, or straight-line methods.
Question 3: Under the passive activity loss rules, which taxpayer is generally allowed to deduct up to $25,000 of rental real estate losses against non-passive income?
- Any taxpayer with rental property
- Active participants with MAGI up to $100,000 (Correct answer)
- Real estate professionals only
- Taxpayers with no other passive income
Correct answer: Active participants with MAGI up to $100,000
The $25,000 rental real estate allowance phases out between $100,000 and $150,000 MAGI for active participants.
Question 4: A C corporation has taxable income of $400,000. What flat federal corporate income tax rate applies under post-TCJA law?
- 35%
- 28%
- 21% (Correct answer)
- 25%
Correct answer: 21%
The Tax Cuts and Jobs Act of 2017 established a flat 21% federal corporate income tax rate effective 2018.
Question 5: Which IRS form must an employer file to report wages paid and taxes withheld on a quarterly basis?
- Form W-2
- Form 941 (Correct answer)
- Form 944
- Form 940
Correct answer: Form 941
Form 941, Employer's Quarterly Federal Tax Return, is used to report wages, tips, and withheld taxes each quarter.
Question 6: A taxpayer receives a $10,000 early distribution from a traditional IRA at age 45. Assuming no exception applies, what additional tax is imposed?
- 5% penalty tax
- 10% additional tax (Correct answer)
- 20% withholding tax
- 25% excise tax
Correct answer: 10% additional tax
IRC §72(t) imposes a 10% additional tax on early distributions from IRAs before age 59½ unless an exception applies.
Question 7: Under the Sarbanes-Oxley Act, how long must audit workpapers be retained by a registered public accounting firm?
- 3 years
- 5 years
- 7 years (Correct answer)
- 10 years
Correct answer: 7 years
SOX Section 802 requires audit firms to retain audit workpapers and related records for at least seven years.
CAT Accounting Technician Taxation & Regulatory Compliance 2
A self-employed consultant earned $85,000 in net profit.
What is the deductible portion of self-employment tax when calculating adjusted gross income?