IAB Taxation & Compliance 4 — Questions and Answers
Question 1: A company provides health insurance to employees. These premiums are generally:
- Taxable wages to the employee
- Deductible by the employer and excluded from employee income (Correct answer)
- Deductible only by the employee
- Subject to self-employment tax
Correct answer: Deductible by the employer and excluded from employee income
Employer-paid health insurance premiums are deductible business expenses and excluded from employees' taxable income under IRC Section 106.
Question 2: Which form is used to report an S-corporation's income, deductions, and other tax items to the IRS?
- Form 1120
- Form 1065
- Form 1120-S (Correct answer)
- Schedule C
Correct answer: Form 1120-S
Form 1120-S is the annual income tax return filed by S-corporations, reporting income that flows through to shareholders.
Question 3: A business owner uses their personal vehicle 60% for business. How should the vehicle depreciation deduction be calculated?
- Full depreciation is allowed
- No deduction is allowed since it's also personal use
- Only 60% of allowable depreciation may be deducted (Correct answer)
- Depreciation is replaced entirely by the standard mileage rate
Correct answer: Only 60% of allowable depreciation may be deducted
When a vehicle is used for both business and personal purposes, only the business-use percentage (60%) of the depreciation deduction is allowable.
Question 4: The IRS statute of limitations for assessing additional tax on a standard return is generally:
- 1 year from filing
- 3 years from filing or due date (Correct answer)
- 5 years from filing
- 7 years from filing
Correct answer: 3 years from filing or due date
The IRS generally has 3 years from the later of the filing date or the return's due date to assess additional taxes.
Question 5: An employee contributes to a traditional 401(k) plan. These contributions are:
- Included in federal taxable wages but excluded from FICA
- Excluded from federal taxable wages but subject to FICA taxes (Correct answer)
- Excluded from both federal taxable wages and FICA taxes
- Fully taxable for federal, state, and FICA purposes
Correct answer: Excluded from federal taxable wages but subject to FICA taxes
Traditional 401(k) pre-tax contributions reduce federal (and usually state) taxable income but are still subject to Social Security and Medicare (FICA) taxes.
Question 6: Which of the following business expenses is generally NOT deductible for federal income tax purposes?
- Ordinary and necessary business meals (50%)
- Employee salaries and wages
- Federal income taxes paid (Correct answer)
- Office rent payments
Correct answer: Federal income taxes paid
Federal income taxes paid by a business are not deductible; only state and local income taxes may be deductible.
Question 7: What is the purpose of IRS Form 941?
- Annual report of employee wages and withholding
- Quarterly report of payroll taxes including Social Security, Medicare, and withheld federal income tax (Correct answer)
- Annual federal unemployment tax return
- Request for employer identification number
Correct answer: Quarterly report of payroll taxes including Social Security, Medicare, and withheld federal income tax
Form 941 is filed quarterly by employers to report wages paid, income taxes withheld, and Social Security and Medicare taxes.
IAB Taxation & Compliance 4
A company provides health insurance to employees.
These premiums are generally: