CTC CTC Business Tax & Entity Structures 2

Question 1

Which type of fringe benefit allows a C corporation to deduct 100% of premiums paid for employee health insurance while the benefit is excluded from the employee's gross income?

Accepted Answer

Employer-paid health insurance premiums

Answer

Employer-paid health insurance premiums are fully deductible by the C corporation and excluded from the employee's gross income under IRC Section 106.

Question 2

The accumulated earnings tax is imposed on C corporations that accumulate earnings beyond reasonable business needs primarily to:

Accepted Answer

Avoid shareholder-level taxation on dividends

Answer

The accumulated earnings tax (currently 20%) targets C corporations that retain earnings to prevent shareholders from paying dividend income tax, rather than distributing those earnings.

Question 3

Which business tax strategy involves hiring a spouse or child in the business to shift income to a lower tax bracket?

Accepted Answer

Income splitting

Answer

Income splitting involves employing family members at reasonable compensation levels to shift business income from the higher-bracket owner to lower-bracket family members.

Question 4

Under the IRC, what is the maximum depreciation deduction allowed under bonus depreciation for qualifying property placed in service in 2023?

Accepted Answer

80%

Answer

For property placed in service in 2023, bonus depreciation is 80% under the phase-down schedule established by the Tax Cuts and Jobs Act.

Question 5

A tax coach recommends converting a single-member LLC taxed as a sole proprietorship to an S corporation primarily to reduce:

Accepted Answer

Self-employment tax on business profits

Answer

Electing S corporation status for an LLC can reduce self-employment tax by allowing the owner to characterize part of business income as distributions rather than wages.

CTC - Certified Tax Coach Practice Test

CTC - Certified Tax Coach Practice Test

CTC CTC Business Tax & Entity Structures 2