IRS - Internal Revenue Service Certified Business Taxation Questions and Answers

Question 1

A C Corporation's primary disadvantage regarding taxation is which of the following?

Accepted Answer

Double taxation of corporate profits and shareholder dividends

Answer

Pass-through taxation of profits and losses

Answer

Limitations on the number and type of shareholders

Answer

The requirement to file Form 1120-S annually

Question 2

A small retail business began the year with an inventory valued at $50,000. During the year, it purchased an additional $120,000 worth of goods for resale. At the end of the year, its remaining inventory was valued at $40,000. What is the Cost of Goods Sold (COGS) for the year?

Accepted Answer

$130,000

Answer

$110,000

Answer

$120,000

Answer

$210,000

Question 3

Which of the following business expenses is generally only 50% deductible for tax purposes?

Accepted Answer

Meals with clients and for employees during travel

Answer

Premiums for employee health insurance

Answer

Business-related travel expenses, such as airfare

Answer

Salaries and wages paid to employees

Question 4

The Modified Accelerated Cost Recovery System (MACRS) is the required depreciation method for most tangible business property placed in service after 1986. Which of the following is a key characteristic of MACRS?

Accepted Answer

It allows for larger depreciation deductions in the earlier years of an asset's life.

Answer

It requires the use of the straight-line method for all asset classes.

Answer

It always uses the actual market value of the asset at the end of each year.

Answer

Salvage value must be subtracted from the asset's basis before calculating depreciation.

Question 5

A small business with 15 full-time employees wants to hire a new employee who is a qualified veteran. Which tax credit is specifically designed to incentivize hiring individuals from targeted groups, including certain veterans?

Accepted Answer

Work Opportunity Tax Credit (WOTC)

Answer

Research and Development (R&D) Credit

Answer

Small Business Health Care Tax Credit

Answer

New Markets Tax Credit (NMTC)

Question 6

Which of the following is a key requirement for a business to be eligible to elect S Corporation status?

Accepted Answer

It cannot have more than 100 shareholders.

Answer

It must have more than one class of stock.

Answer

It must be a publicly traded company.

Answer

At least one shareholder must be a non-resident alien.