Business Taxation Flashcards
7 cards from real IRS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Business Taxation flashcards as text
A corporation uses the accrual method of accounting. When can it deduct a business expense?
Answer: When all events have occurred that fix the liability and the amount can be determined with reasonable accuracy
Under the accrual method, a deduction is allowable when the all-events test is met and economic performance has occurred.
Which of the following is NOT a qualifying expense for the Section 179 deduction?
Answer: Inventory held for sale
Inventory held for sale is specifically excluded from Section 179 expensing, which applies to depreciable business property.
An S corporation has a net loss for the year. How is this loss treated by a shareholder?
Answer: It passes through to shareholders and is deductible up to their basis in stock and debt
S corporation losses pass through to shareholders but are limited to each shareholder's adjusted basis in stock and any debt owed by the corporation to the shareholder.
What is the corporate tax rate for C corporations under current law?
Answer: 21%
The Tax Cuts and Jobs Act of 2017 established a flat 21% corporate income tax rate for C corporations.
A partnership purchases land for $200,000. The land is distributed to a partner when its FMV is $250,000. What is the partner's basis in the land?
Answer: The partnership's adjusted basis in the land at time of distribution
Under IRC §732, a partner's basis in distributed property equals the partnership's adjusted basis in that property, not its fair market value.
Which depreciation method generally produces the largest deduction in the first year for 5-year MACRS property?
Answer: 200% declining balance
The 200% declining balance method (double declining balance) produces the highest first-year depreciation for MACRS 5-year property before switching to straight-line.
A C corporation pays a dividend to its individual shareholders. How is this dividend taxed at the individual level?
Answer: It is taxed as a qualified dividend at preferential capital gains rates
Qualified dividends received by individual shareholders from domestic C corporations are generally taxed at the preferential long-term capital gains rates (0%, 15%, or 20%).