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TAX 4001 - Final Exam Practice Questions (1)
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TAX 4001 - Final Exam Practice Questions (1)
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TAX 4001 - Final Exam Practice QuestionsDebbie is a limited partner in ADK Partnership. Her partnership Schedule K-1 reports
$19,000 ordinary business income, $2,000 long-term capital gain, and $830 dividend
income. Which of these items are subject to self-employment tax?
None of the items are subject to SE tax because Debbie is a limited partner.
$19,000 ordinary business income
$19,000 ordinary business income and $2,000 long-term capital gain
All income reported on a partner's Schedule K-1 are subject to self-employment tax. -
ANS-None of the items are subject to SE tax because Debbie is a limited partner.
Loretta is the sole shareholder of Country Collectibles, a calendar year S corporation.
Although Loretta spends at least 40 hours per week supervising Country Collectible's
employees, she has never drawn a salary from the business. Country Collectibles has
been in existence for five years and has earned a profit every year. Loretta withdraws
$100,000 cash from the S corporation each year. As a result of an audit, the IRS asserts
that $75,000 of the cash withdrawal should be considered a salary payment to Loretta.
What are the payroll tax consequences of this recharacterization?
No payroll taxes will be owed as a result of the audit.
Loretta and Country Collectibles will each be liable for unpaid payroll taxes as a result of
the audit.
Only Loretta will be liable for unpaid payroll taxes as a result of the audit.
Only Country Collectibles will be liable for unpaid payroll taxes as a result of the audit. -
ANS-Loretta and Country Collectibles will each be liable for unpaid payroll taxes as a
result of the audit.
Which of the following statements regarding sole proprietorships is false?
A sole proprietorship has no legal identity separate from that of its owner.
Sole proprietorships are the most common form of business entity in the U.S.
,The cash flow generated by a sole proprietorship belongs to the owner.
The assets and liabilities of a sole proprietorship are held in the name of the business,
not the owner. - ANS-The assets and liabilities of a sole proprietorship are held in the
name of the business, not the owner.
Which of the following statements regarding alternative business forms is true?
If an S corporation's election terminates, the corporation is forced to liquidate.
Some states treat S corporations as taxable corporations for purposes of corporate
franchise taxes.
Generally, the transfer of property to a new partnership in exchange for a partnership
interest is a taxable event.
The owners of a new business should be indifferent between operating as an S
corporation and a partnership. - ANS-Some states treat S corporations as taxable
corporations for purposes of corporate franchise taxes.
Which of the following would not be a successful means of avoiding double tax on the
earnings of a closely-held corporation?
Having a shareholder lend money to the corporation at a reasonable rate of interest.
Having a shareholder lease warehouse space to the corporation at a reasonable rental
rate.
Having the corporation pay the shareholder a fixed percentage of the par value of the
stock the shareholder owns.
Having the corporation employ the shareholder at a reasonable compensation. -
ANS-Having the corporation pay the shareholder a fixed percentage of the par value of
the stock the shareholder owns.
Which of the following statements regarding the calculation of taxable income is false?
The first step in the calculation of taxable income is determining the taxpayer's total
income.
, Adjusted gross income is equal to total income less above-the-line deductions.
Adjusted gross income can be reduced by the greater of the standard deduction or
itemized deductions.
Taxpayers are allowed to deduct the greater of itemized deductions or above-the-line
deductions in calculating taxable income. - ANS-Taxpayers are allowed to deduct the
greater of itemized deductions or above-the-line deductions in calculating taxable
income.
Hunter, age 17, is considered a dependent of his parents for tax purposes. This year,
Hunter earned $16,000 for appearing in a television commercial. Compute Hunter's
standard deduction.
$1,100
$16,000
$12,400
$0 - ANS-$12,400
(Dependents limited to $1,100 or Earned Income + $350. LIMITED TO $12,400 IN
2020)
Melissa, age 16, is claimed as a dependent on her parents' tax return. This year,
Melissa earned $2,000 from babysitting and $1,280 interest income from a savings
account. Compute Melissa's standard deduction.
$2,000
$2,350
$0
$1,100 - ANS-$2,350
(Dependents limited to $1,100 or Earned Income + $350. LIMITED TO $12,400 IN
2020)
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