CPA Tax Planning & Compliance 3

Question 1

Which of the following is NOT a deductible business expense under IRC Section 162?

Accepted Answer

Political contributions made on behalf of the business

Answer

Political contributions are explicitly disallowed as business deductions under IRC Section 162(e), even if made for business purposes.

Question 2

Under the passive activity loss rules, rental losses are generally:

Accepted Answer

Deductible only against passive income unless the taxpayer is a real estate professional

Answer

Rental activities are passive by default; losses can only offset other passive income unless the taxpayer qualifies as a real estate professional under IRC Section 469.

Question 3

What is the tax treatment of a like-kind exchange under IRC Section 1031?

Accepted Answer

Gain is deferred until the replacement property is sold

Answer

A qualifying Section 1031 exchange defers—not eliminates—gain recognition by substituting the basis of the old property into the new property.

Question 4

Which of the following retirement accounts allows after-tax contributions with tax-free qualified withdrawals?

Accepted Answer

Roth IRA

Answer

Roth IRAs are funded with after-tax dollars; qualifying distributions (age 59½, 5-year holding period met) are completely tax-free including earnings.

Question 5

A taxpayer with a Schedule C business pays $8,000 in self-employment tax. What deduction is allowed on Form 1040?

Accepted Answer

50% of self-employment tax ($4,000) as an above-the-line deduction

Answer

Self-employed taxpayers may deduct 50% of their self-employment tax as an above-the-line adjustment to income on Schedule 1.

(CPA) Certified Practicing Accountant Practice Test

(CPA) Certified Practicing Accountant Practice Test

CPA Tax Planning & Compliance 3