Tax Consulting Business Tax Planning

Question 1

Which entity type allows owners to avoid double taxation while providing limited liability protection?

Accepted Answer

S Corporation

Answer

An S Corporation passes income and losses through to shareholders, avoiding the double taxation imposed on C Corporations.

Question 2

Under IRC Section 179, what is the primary benefit for small businesses purchasing equipment?

Accepted Answer

Immediate expensing of qualifying assets

Answer

Section 179 allows businesses to deduct the full cost of qualifying equipment in the year of purchase rather than depreciating it over time.

Question 3

A C Corporation's net operating loss (NOL) can generally be carried forward for how many years under current tax law?

Accepted Answer

Indefinitely

Answer

Under the Tax Cuts and Jobs Act of 2017, NOLs generated after December 31, 2017 can be carried forward indefinitely, but are limited to 80% of taxable income.

Question 4

Which depreciation method allows a business to take larger deductions in the early years of an asset's life?

Accepted Answer

Modified Accelerated Cost Recovery System (MACRS)

Answer

MACRS is the standard depreciation system in the US that accelerates deductions by applying higher percentages in earlier years.

Question 5

What is the tax treatment of a guaranteed payment made to a partner in a partnership?

Accepted Answer

Ordinary income to the partner, deductible by the partnership

Answer

Guaranteed payments are treated as ordinary income to the receiving partner and are generally deductible by the partnership as a business expense.

Tax Consulting Practice Test

Tax Consulting Practice Test

Tax Consulting Business Tax Planning