CPA Tax Planning & Compliance 2

Question 1

A corporation has $500,000 of taxable income and pays $105,000 in federal income tax. What is the effective tax rate?

Accepted Answer

21%

Answer

Under the Tax Cuts and Jobs Act of 2017, the flat corporate tax rate is 21%, so $500,000 × 21% = $105,000.

Question 2

Which depreciation method generally provides the largest tax deductions in the early years of an asset's life?

Accepted Answer

Double-declining balance

Answer

Double-declining balance is an accelerated method that applies twice the straight-line rate to the declining book value, front-loading deductions.

Question 3

Under IRC Section 179, what is the primary benefit to a business?

Accepted Answer

Immediate expensing of qualifying property rather than depreciating over its useful life

Answer

Section 179 allows businesses to immediately deduct the full cost of qualifying depreciable property in the year placed in service, subject to annual limits.

Question 4

A taxpayer sells a capital asset held for 18 months at a $10,000 gain. How is this gain classified?

Accepted Answer

Long-term capital gain

Answer

Assets held more than 12 months qualify for long-term capital gain treatment, which is taxed at preferential rates (0%, 15%, or 20%).

Question 5

Which entity type allows owners to avoid double taxation while providing liability protection similar to a corporation?

Accepted Answer

S corporation

Answer

An S corporation passes income and losses directly to shareholders, avoiding corporate-level tax while still providing limited liability protection.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA Tax Planning & Compliance 2