IAB Taxation & Compliance 3 — Questions and Answers
Question 1: A corporation has $500,000 in taxable income. What is the federal corporate income tax rate applied under the Tax Cuts and Jobs Act?
- 21% (Correct answer)
- 25%
- 28%
- 35%
Correct answer: 21%
The Tax Cuts and Jobs Act of 2017 established a flat 21% federal corporate income tax rate effective 2018.
Question 2: A sole proprietor must pay estimated taxes if they expect to owe at least how much in federal tax for the year?
- $500
- $1,000 (Correct answer)
- $2,500
- $5,000
Correct answer: $1,000
Individuals, including sole proprietors, must make estimated tax payments if they expect to owe at least $1,000 in federal taxes.
Question 3: Which accounting method requires matching revenues with the expenses incurred to generate them?
- Cash basis
- Modified cash basis
- Accrual basis (Correct answer)
- Hybrid method
Correct answer: Accrual basis
The accrual basis recognizes revenues and expenses when earned or incurred, matching them in the same accounting period.
Question 4: Sales tax collected from customers should be recorded as:
- Revenue
- A liability (Correct answer)
- An asset
- An expense
Correct answer: A liability
Sales tax collected is a liability because the business holds it temporarily before remitting it to the state taxing authority.
Question 5: The federal unemployment tax (FUTA) rate is 6.0% on the first $7,000 of wages. The maximum credit against FUTA for timely state unemployment tax payments is:
- 3.0%
- 5.4% (Correct answer)
- 6.0%
- 0.6%
Correct answer: 5.4%
Employers who timely pay state unemployment taxes receive a maximum 5.4% credit, reducing the net FUTA rate to 0.6%.
Question 6: Which IRS form must a business file to request an extension for filing a corporate income tax return?
- Form 4868
- Form 7004 (Correct answer)
- Form 2553
- Form 8822-B
Correct answer: Form 7004
Form 7004 is used to request an automatic 6-month extension for filing business income tax returns, including corporate returns.
Question 7: Under MACRS, what is the recovery period for office furniture and equipment (7-year property)?
- 5 years
- 7 years (Correct answer)
- 10 years
- 15 years
Correct answer: 7 years
Office furniture and equipment are classified as 7-year property under MACRS and depreciated over a 7-year recovery period.
IAB Taxation & Compliance 3
A corporation has $500,000 in taxable income.
What is the federal corporate income tax rate applied under the Tax Cuts and Jobs Act?