Federal Taxes and Management Decisions Practice Quiz

Federal Taxes and Management Decisions Practice Quiz

1. Which of the following business structures is taxed as a pass-through entity?
A. C Corporation
B. S Corporation
C. Nonprofit Corporation
D. Publicly Traded Corporation

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2. What is the primary benefit of a Section 179 deduction for businesses?
A. It allows for the deferral of tax payments.
B. It permits the immediate expense of certain property costs.
C. It reduces the overall sales tax rate for the company.
D. It avoids double taxation.

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3. Which tax form is generally used to report partnership income?
A. Form 1120
B. Form 1040
C. Form 1065
D. Form 990

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4. A corporation with a December 31 fiscal year end must file its federal income tax return by:
A. January 31 of the following year
B. February 15 of the following year
C. March 15 of the following year
D. April 15 of the following year

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5. In a like-kind exchange under Section 1031, what is the primary tax benefit?
A. Exclusion of all gains from income
B. Deferral of gains to a future tax year
C. Deduction of losses in the current tax year
D. Elimination of depreciation recapture

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6. Which of the following expenses is NOT deductible for tax purposes?
A. Salaries of employees
B. Penalties for late tax payments
C. Advertising expenses
D. Office rent

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7. What is the primary factor distinguishing a tax credit from a tax deduction?
A. Credits reduce taxable income; deductions reduce tax liability.
B. Credits reduce tax liability; deductions reduce taxable income.
C. Credits apply to individuals; deductions apply to businesses.
D. Credits are optional; deductions are mandatory.

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8. For federal tax purposes, how are capital gains from the sale of business assets taxed?
A. They are excluded from income.
B. They are taxed at a preferential rate.
C. They are taxed as ordinary income.
D. They are taxed only if the gain exceeds $100,000.

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9. When a business purchases a vehicle for company use, which depreciation method is most commonly applied for tax purposes?
A. Straight-line depreciation
B. Double-declining balance
C. Section 179 deduction
D. MACRS

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10. Under the cash method of accounting, income is recognized when:
A. The service is performed.
B. Payment is received.
C. The invoice is sent.
D. The contract is signed.

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11. Which of the following is considered a fringe benefit for tax purposes?
A. Employee salary
B. Health insurance
C. Office supplies
D. Capital investment

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12. What is the primary tax consequence of failing to file a federal tax return on time?
A. Revocation of business licenses
B. Additional penalties and interest charges
C. Audit of prior-year returns
D. Automatic extension of time to file

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13. A sole proprietor’s business income is reported on which schedule of the personal tax return?
A. Schedule A
B. Schedule C
C. Schedule D
D. Schedule E

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14. Which of the following transactions typically triggers self-employment tax?
A. Sale of long-term capital assets
B. Earnings from independent contractor work
C. Dividends from corporate stock
D. Interest income from savings accounts

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15. What is the tax advantage of retaining earnings within a C Corporation?
A. Avoidance of double taxation
B. Lower overall tax rates
C. Delayed recognition of income for shareholders
D. Deferral of dividend taxation

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16. How is unearned revenue typically treated for federal tax purposes?
A. Taxed in the year it is earned
B. Taxed in the year it is received
C. Deferred until the service is provided
D. Exempt from federal taxes

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17. A business can carry back a net operating loss for how many years under current federal tax laws?
A. 2 years
B. 3 years
C. 5 years
D. Carrybacks are no longer allowed

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18. Which of the following taxes are deductible on a business’s tax return?
A. Federal income taxes
B. Sales taxes on goods purchased for resale
C. Penalties for late payroll tax deposits
D. Excise taxes paid for luxury items

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19. When determining tax liability for a C Corporation, charitable contributions are deductible up to what percentage of taxable income?
A. 10%
B. 25%
C. 50%
D. 100%

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20. What is the maximum Section 179 deduction available for 2024 for qualifying property?
A. $500,000
B. $1,080,000
C. $1,160,000
D. $1,500,000

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21. What is the primary purpose of Form 940?
A. To report employee wage information
B. To report federal unemployment taxes (FUTA)
C. To file a corporation’s annual tax return
D. To apply for an employer identification number (EIN)

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22. Which of the following is NOT a tax consequence of liquidating a corporation?
A. Shareholders recognize gains or losses on distributed property.
B. The corporation recognizes gains or losses on liquidated property.
C. Shareholders are taxed on retained earnings.
D. The corporation’s tax obligations end.

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23. What is the threshold for the additional Medicare tax on self-employment income for a single filer?
A. $125,000
B. $200,000
C. $250,000
D. $400,000

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24. How are dividends received by a corporation from another corporation taxed?
A. Fully taxable
B. Excluded from taxable income
C. Partially deductible under the dividends-received deduction
D. Taxed at the capital gains rate

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25. Which accounting method is required for businesses with over $25 million in gross receipts?
A. Cash method
B. Accrual method
C. Modified cash method
D. Percentage of completion method

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26. A business claiming the research and development (R&D) tax credit must:
A. Have gross receipts under $5 million.
B. Provide evidence of innovation efforts.
C. Deduct the credit directly from taxable income.
D. Offset the credit only against payroll taxes.

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27. Which of the following is subject to payroll taxes?
A. Partner’s guaranteed payments
B. Passive rental income
C. Dividend income
D. Interest on municipal bonds

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28. When a sole proprietor uses their personal vehicle for business purposes, how are the expenses typically deducted?
A. As an itemized deduction
B. Through the standard mileage rate or actual expenses
C. Only if the vehicle is exclusively used for business
D. They are not deductible

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29. What is the impact of a business failing to deposit payroll taxes on time?
A. Revocation of the employer’s EIN
B. Additional penalties and interest charges
C. Deduction of missed deposits from taxable income
D. Automatic approval of an installment agreement

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30. What is the main purpose of the Alternative Minimum Tax (AMT) for corporations?
A. To reduce the tax liability for small businesses
B. To prevent corporations from avoiding taxes through deductions
C. To provide a tax credit for research and development
D. To calculate state and local tax deductions

31. A sole proprietor with business income of $120,000 and expenses of $40,000 reports taxable income of:
A. $80,000
B. $120,000
C. $60,000
D. $100,000

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32. Which tax document must a business provide to independent contractors paid more than $600 during the tax year?
A. W-2
B. 1099-NEC
C. Schedule C
D. 1098

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33. What is the maximum corporate tax rate under the current federal tax code?
A. 21%
B. 28%
C. 35%
D. 37%

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34. When a business incurs a net operating loss (NOL), what is its primary tax benefit?
A. The NOL can offset taxable income in future years.
B. The NOL eliminates payroll tax obligations.
C. The NOL is refundable as a tax credit.
D. The NOL avoids reporting gross receipts.

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35. Which of the following fringe benefits is taxable to employees?
A. Health insurance premiums paid by the employer
B. Personal use of a company car
C. Employer-paid educational assistance under $5,250
D. Employer contributions to a retirement plan

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36. What is the tax treatment of meals provided to employees for the employer’s convenience?
A. Fully deductible by the employer
B. 50% deductible by the employer
C. Fully taxable to the employee
D. Excluded from the employee’s taxable income

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37. A corporation can deduct charitable contributions in excess of the annual limit if:
A. It donates to qualified non-profits only.
B. It carries the excess forward to future years.
C. It reduces dividends distributed to shareholders.
D. It itemizes deductions on Form 1120.

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38. What is the primary purpose of an employment identification number (EIN)?
A. To track business revenue
B. To identify a business for tax reporting purposes
C. To certify compliance with tax laws
D. To validate employee Social Security numbers

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39. What is the tax treatment of prepaid income received by a business under the accrual method?
A. Taxed in the year received
B. Taxed when services are performed
C. Taxed when expenses are incurred
D. Excluded from taxable income

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40. A qualified small business can claim the start-up cost deduction up to which amount in the year it begins operations?
A. $1,000
B. $2,500
C. $5,000
D. $10,000

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41. When determining depreciation on real property, what is the recovery period under MACRS for residential rental property?
A. 27.5 years
B. 39 years
C. 15 years
D. 20 years

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42. Which of the following is classified as a deductible business expense?
A. Bribes to foreign officials
B. Commissions paid to employees
C. Political contributions
D. Penalties for breaking local laws

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43. What is the key advantage of electing S Corporation status?
A. Avoidance of payroll taxes
B. Pass-through taxation to shareholders
C. Elimination of self-employment taxes
D. Exclusion from quarterly estimated taxes

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44. Which of the following is subject to self-employment tax?
A. Wages earned as an employee
B. Dividend income
C. Rental income from real estate
D. Business income from a sole proprietorship

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45. If a business donates inventory to a qualified charity, the deduction is generally limited to:
A. The fair market value of the inventory.
B. The cost basis of the inventory.
C. Twice the cost basis of the inventory.
D. The sales price of the inventory.

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46. How is the depreciation of listed property, such as a car, affected if business use falls below 50%?
A. Depreciation must switch to the straight-line method.
B. Depreciation must switch to double-declining balance.
C. Depreciation is fully disallowed.
D. Depreciation can continue under MACRS.

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47. A business that does not pay payroll taxes on time may be subject to the Trust Fund Recovery Penalty. This penalty is:
A. Equal to 10% of the unpaid taxes.
B. Equal to 100% of the unpaid taxes.
C. Capped at $50,000 per year.
D. Automatically waived if paid within 90 days.

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48. What is the primary tax implication of a sole proprietor hiring their spouse as an employee?
A. The spouse’s wages are exempt from FICA taxes.
B. The spouse’s wages are deductible as a business expense.
C. The spouse’s wages are excluded from taxable income.
D. The spouse cannot legally be hired as an employee.

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49. Which form is used by a corporation to report estimated tax payments?
A. Form 941
B. Form 1120-W
C. Form 1040-ES
D. Form 1099

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50. What is the main tax advantage of deferring income to a future year?
A. It reduces the current tax liability.
B. It eliminates the need for estimated taxes.
C. It avoids the alternative minimum tax.
D. It increases allowable deductions.

51. What is the primary tax benefit of a Section 179 deduction for businesses?
A. Allows immediate expensing of qualified property purchases.
B. Eliminates the need for depreciation calculations.
C. Excludes property purchases from taxable income.
D. Defers taxes on property purchases for 5 years.

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52. A C corporation distributes $50,000 in dividends to shareholders. These dividends are:
A. Taxable to the corporation only.
B. Taxable to the shareholders only.
C. Taxable to both the corporation and the shareholders.
D. Tax-exempt if reinvested within the year.

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53. Which type of income is excluded from self-employment tax?
A. Income from a sole proprietorship
B. Guaranteed payments to LLC members
C. Rental income from real estate
D. Consulting fees

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54. For tax purposes, what is the recovery period for nonresidential real property under MACRS?
A. 15 years
B. 27.5 years
C. 39 years
D. 20 years

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55. What is the purpose of Form 8829?
A. To report business use of a vehicle.
B. To claim the home office deduction.
C. To deduct startup expenses.
D. To report employee wages.

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56. Which expense is fully deductible by a business?
A. 50% of meal expenses for client meetings
B. Interest on a loan used to purchase tax-exempt securities
C. Advertising and promotional expenses
D. Political contributions to a campaign

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57. What is the primary characteristic of a tax-deferred exchange under Section 1031?
A. Immediate recognition of capital gain.
B. Deferral of gain if like-kind property is exchanged.
C. Elimination of tax liability on the gain.
D. Ability to deduct losses immediately.

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58. A limited liability company (LLC) with two members is typically taxed as:
A. A corporation.
B. A sole proprietorship.
C. A partnership.
D. An S corporation.

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59. The accumulated earnings tax is imposed on corporations that:
A. Fail to distribute dividends.
B. Have profits exceeding $1 million annually.
C. Distribute excess dividends to shareholders.
D. Use profits to pay executive bonuses.

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60. When a business leases equipment, the lease payments are:
A. Capitalized and amortized over the lease term.
B. Deductible as a current expense.
C. Added to the cost basis of the equipment.
D. Deductible only if the lease term exceeds 12 months.

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61. A taxpayer operating a sole proprietorship reports income and expenses on which form?
A. Form 1120
B. Schedule C
C. Form 1040-EZ
D. Form 941

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62. What is the annual contribution limit for a SIMPLE IRA plan in 2024 for employees under age 50?
A. $13,500
B. $15,500
C. $19,500
D. $22,500

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63. A taxpayer sells a business asset for $50,000, with an original purchase price of $40,000 and accumulated depreciation of $10,000. The recognized gain is:
A. $10,000 ordinary income.
B. $10,000 capital gain.
C. $20,000 ordinary income.
D. $20,000 capital gain.

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64. What is the tax treatment of prepaid rent received by a business?
A. Recognized as income in the year received.
B. Recognized as income when the rental period begins.
C. Recognized as income at the end of the lease term.
D. Excluded from taxable income.

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65. Which of the following entities is exempt from federal income tax?
A. Sole proprietorships
B. S corporations
C. Non-profit organizations under 501(c)(3)
D. Limited liability companies (LLCs)

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66. A business donates a used vehicle with a fair market value of $10,000 and a cost basis of $7,000 to a charity. The allowable deduction is:
A. $3,000
B. $7,000
C. $10,000
D. $5,000

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67. When calculating taxable income for a corporation, which item is excluded?
A. Tax-exempt interest income
B. Employee wages
C. Dividends received from another corporation
D. Depreciation expenses

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68. Which of the following is considered a capital asset for tax purposes?
A. Inventory held for sale
B. Accounts receivable
C. Machinery used in business operations
D. Stocks held for investment

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69. Under the tax code, a “constructive dividend” is:
A. An intentional overstatement of profits.
B. A disguised payment to shareholders.
C. A tax-free return of capital.
D. Fully deductible by the corporation.

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70. What is the primary tax advantage of an installment sale?
A. Eliminates capital gains tax.
B. Spreads the tax liability over multiple years.
C. Allows deferral of depreciation recapture.
D. Converts ordinary income into capital gains.

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71. Which type of stock option may qualify for preferential tax treatment?
A. Non-qualified stock options (NQSOs)
B. Incentive stock options (ISOs)
C. Restricted stock units (RSUs)
D. Employee stock purchase plans (ESPPs)

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72. When a C corporation incurs a net capital loss, it may:
A. Deduct the loss in the year it occurs.
B. Carry the loss back three years.
C. Offset the loss against ordinary income.
D. Carry the loss forward indefinitely.

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73. What is the primary tax treatment of qualified dividends received by individual taxpayers?
A. Taxed as ordinary income.
B. Taxed at long-term capital gains rates.
C. Excluded from taxable income.
D. Fully refundable as a tax credit.

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74. For an employee, the value of group-term life insurance coverage exceeding $50,000 is:
A. Tax-free.
B. Taxable as wages.
C. Deductible as a medical expense.
D. Reported as self-employment income.

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75. The Domestic Production Activities Deduction (DPAD) is:
A. A refundable tax credit for manufacturers.
B. A deduction for certain domestic production activities.
C. An exclusion from gross income.
D. Available to non-profit organizations.

76. When a business has a net operating loss (NOL), it can:
A. Deduct the loss in the same tax year.
B. Carry the loss forward indefinitely to offset future taxable income.
C. Carry the loss back to offset taxable income in previous years.
D. Exclude the loss from taxable income calculations.

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77. Which of the following expenses is not deductible for tax purposes?
A. Charitable contributions
B. Fines and penalties
C. Advertising expenses
D. Legal fees related to business operations

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78. How are capital gains treated for a corporation?
A. Taxed at a lower rate than ordinary income.
B. Taxed at the same rate as ordinary income.
C. Completely tax-exempt.
D. Subject to self-employment tax.

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79. Which tax form is used to report income and expenses for partnerships?
A. Form 1065
B. Form 1120
C. Form 1120S
D. Schedule C

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80. The tax benefit of accelerated depreciation is that it:
A. Reduces taxable income more quickly in the early years of asset use.
B. Eliminates the need for depreciation in later years.
C. Excludes the asset from capital gains tax upon sale.
D. Defers all tax liability to the final year of depreciation.

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81. A company earns $200,000 in foreign income and pays $40,000 in foreign taxes. How can the foreign tax credit be used?
A. To exclude the income from U.S. taxation.
B. To reduce U.S. taxable income by $40,000.
C. To offset U.S. tax liability up to $40,000.
D. To claim a refund for $40,000.

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82. Which of the following is considered passive income?
A. Wages earned from employment
B. Dividends from a stock investment
C. Rental income from a property not actively managed
D. Profit from a sole proprietorship

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83. For an S corporation, shareholders are taxed on:
A. Only distributed earnings.
B. Their proportional share of corporate income, whether distributed or not.
C. Only capital gains realized by the corporation.
D. Dividends received from the corporation.

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84. A taxpayer exchanges a business vehicle with a fair market value of $25,000 for another vehicle worth $28,000 and pays $3,000 in cash. What is the recognized gain?
A. $0
B. $3,000
C. $25,000
D. $28,000

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85. What is the primary purpose of a cost segregation study?
A. To determine tax-exempt assets.
B. To accelerate depreciation by reclassifying assets.
C. To reduce property tax liability.
D. To allocate costs between partners.

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86. Which of the following retirement plans allows employers to contribute on behalf of employees?
A. Traditional IRA
B. Roth IRA
C. SEP IRA
D. Health Savings Account (HSA)

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87. In a cash basis accounting system, income is recognized when:
A. Services are performed.
B. Payment is received.
C. An invoice is issued.
D. The accounting period ends.

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88. For tax purposes, goodwill is amortized over:
A. 5 years
B. 10 years
C. 15 years
D. 20 years

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89. What is the tax treatment for a fringe benefit provided to employees that does not meet IRS guidelines?
A. Excluded from employee wages.
B. Fully deductible for the employer.
C. Included in employee wages and taxed as income.
D. Tax-exempt for the employee but not deductible for the employer.

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90. If a corporation qualifies as a personal service corporation, its taxable income is subject to:
A. Graduated corporate tax rates.
B. A flat tax rate.
C. Individual tax rates.
D. Self-employment tax.

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91. A business purchases machinery for $30,000 and receives a Section 179 deduction of $10,000. What is the depreciable basis?
A. $10,000
B. $20,000
C. $30,000
D. $40,000

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92. Which of the following is subject to backup withholding?
A. Salary payments
B. Dividends paid to shareholders without a valid TIN
C. Rental income
D. Business loan repayments

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93. An employee earns $150,000 in wages for 2024. What is the maximum Social Security tax the employer must pay?
A. $9,114
B. $9,932
C. $7,347
D. $8,537

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94. A company incurs $12,000 in entertainment expenses related to client meetings. What portion is deductible?
A. $0
B. $6,000
C. $9,000
D. $12,000

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95. A sole proprietor claims a home office deduction. The deduction is limited to:
A. The percentage of business use.
B. The income earned from the business.
C. The total expenses of the home.
D. The square footage of the home office.

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96. A C corporation has $100,000 in taxable income and $40,000 in charitable contributions. The allowable deduction for 2024 is:
A. $10,000
B. $25,000
C. $40,000
D. $50,000

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97. What is the tax treatment for dividends received by a corporation from another corporation in which it owns 10%?
A. 50% is excluded from taxable income.
B. 65% is excluded from taxable income.
C. 100% is excluded from taxable income.
D. Fully taxable as ordinary income.

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98. A business owner invests $50,000 into an LLC. How is this treated for tax purposes?
A. Taxable income to the LLC.
B. A nontaxable capital contribution.
C. A loan subject to interest.
D. A deductible expense for the owner.

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99. A taxpayer purchases equipment for $75,000 and sells it for $90,000 after claiming $25,000 in depreciation. The taxable gain is:
A. $15,000
B. $25,000
C. $40,000
D. $50,000

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100. A business hires an independent contractor and pays them $10,000 in 2024. The payment must be reported on:
A. Form 1099-NEC
B. Form W-2
C. Form 941
D. Schedule C

101. Which of the following is true about the Alternative Minimum Tax (AMT) for corporations?
A. AMT applies only to S corporations.
B. AMT ensures corporations pay a minimum level of tax, regardless of deductions.
C. AMT is based solely on gross receipts.
D. AMT has been permanently repealed for all corporations.

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102. What is the main tax advantage of a Limited Liability Company (LLC)?
A. It is taxed at a flat corporate rate.
B. It offers pass-through taxation, avoiding double taxation.
C. Members are exempt from self-employment taxes.
D. It provides tax-free income distributions.

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103. A partnership distributes $20,000 of cash to a partner. This amount:
A. Is always taxable to the partner.
B. Reduces the partner’s basis in the partnership.
C. Is treated as a guaranteed payment.
D. Increases the partnership’s taxable income.

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104. Which type of income is subject to self-employment tax?
A. Passive rental income
B. Capital gains
C. Partnership earnings for general partners
D. Dividends from corporate stocks

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105. Which of the following expenses is not deductible as a business expense?
A. Interest on business loans
B. Personal travel expenses
C. Salaries paid to employees
D. Business insurance premiums

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106. What is the maximum annual Section 179 expense deduction for 2024?
A. $500,000
B. $1,050,000
C. $1,160,000
D. $1,200,000

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107. Which of the following qualifies for the Qualified Business Income (QBI) deduction?
A. Wages earned by employees
B. Dividend income
C. Income from a sole proprietorship
D. Interest income from investments

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108. For tax purposes, a short-term capital gain is:
A. Taxed at ordinary income rates.
B. Taxed at a reduced rate of 15%.
C. Tax-free if reinvested within the same tax year.
D. Deferred until the asset is sold.

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109. A corporation incurs $10,000 in start-up costs. How much can it immediately deduct in the first year?
A. $2,000
B. $5,000
C. $10,000
D. $15,000

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110. A taxpayer sells a business asset for $50,000, with an adjusted basis of $30,000. What portion of the $20,000 gain is subject to depreciation recapture?
A. $0
B. $10,000
C. $15,000
D. $20,000

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111. The tax consequences of a like-kind exchange under Section 1031 include:
A. Immediate recognition of all gains.
B. Deferral of gains until the replacement property is sold.
C. Tax-free treatment of gains.
D. Immediate deduction of exchange expenses.

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112. A C corporation has a net operating loss (NOL) of $50,000 in 2024. How can it be utilized?
A. Carried forward to offset taxable income indefinitely.
B. Carried back two years to offset prior income.
C. Deducted in full in the current year.
D. Converted to a refundable tax credit.

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113. A sole proprietor receives $120,000 in net income. How much of this income is subject to self-employment tax?
A. $0
B. $92,400
C. $113,700
D. $120,000

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114. Which of the following fringe benefits is fully taxable to employees?
A. Health insurance premiums
B. Group-term life insurance over $50,000
C. Employer contributions to a retirement plan
D. Tuition reimbursement up to $5,250

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115. The tax basis of property received as a gift is:
A. The fair market value at the time of the gift.
B. The donor’s adjusted basis.
C. Zero, until the property is sold.
D. Determined by the higher of the donor’s basis or FMV.

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116. A small business hires its first employee. What form must it file to report quarterly payroll taxes?
A. Form 940
B. Form 941
C. Form W-2
D. Form 1099

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117. A taxpayer earns $10,000 from passive rental income. How is this taxed?
A. Subject to self-employment tax.
B. Taxed at ordinary income tax rates.
C. Exempt from federal taxation.
D. Taxed only if exceeding $50,000 annually.

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118. A business pays $3,000 in legal fees related to acquiring a building. For tax purposes, the $3,000 is:
A. Deductible as a business expense.
B. Capitalized as part of the building’s cost basis.
C. Fully refundable.
D. Treated as a non-deductible expense.

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119. Which of the following statements about employee stock options is true?
A. Incentive stock options are taxed as ordinary income when exercised.
B. Non-qualified stock options are taxed when granted.
C. The tax treatment of stock options depends on their type.
D. Stock options are always tax-free.

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120. Which of the following tax credits directly reduces tax liability dollar-for-dollar?
A. Child and Dependent Care Credit
B. State income tax deduction
C. Standard deduction
D. Itemized deductions

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121. What is the tax treatment of prepaid rent received by a cash-basis taxpayer?
A. Taxed when earned.
B. Taxed when received.
C. Taxed only if exceeding $10,000.
D. Exempt from taxation.

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122. A business makes a non-cash charitable contribution of inventory with a fair market value of $15,000 and a cost basis of $10,000. What is the allowable deduction?
A. $10,000
B. $12,500
C. $15,000
D. $25,000

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123. Which of the following is not an example of a tax preference item for AMT purposes?
A. Private activity bond interest
B. Depreciation adjustments
C. Foreign tax credit
D. Incentive stock options

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124. A sole proprietor claims the standard mileage rate for business travel. This rate includes:
A. Fuel and maintenance costs only.
B. Depreciation, fuel, and maintenance.
C. Insurance and fuel costs only.
D. Parking fees and tolls.

________________________________________
125. Which tax form is used to report additional income or adjustments to income?
A. Schedule A
B. Schedule C
C. Schedule D
D. Schedule 1

________________________________________
126. A C corporation declares a dividend of $50,000. How is this taxed to the shareholders?
A. Taxed as capital gains.
B. Taxed as ordinary income.
C. Exempt from taxation.
D. Taxed only if exceeding $100,000.

________________________________________
127. The purpose of the Depreciation Recapture Rule is to:
A. Adjust the basis of an asset.
B. Recapture excess depreciation as ordinary income.
C. Defer taxes on capital gains.
D. Eliminate double taxation on gains.

128. What is the primary tax advantage of a Subchapter S corporation?
A. Tax-free distributions to shareholders.
B. Avoidance of corporate-level taxation.
C. Eligibility for foreign shareholders.
D. Unlimited number of shareholders.

________________________________________
129. Which of the following qualifies as a deductible casualty loss for a business?
A. Normal wear and tear on equipment.
B. Damage caused by employee negligence.
C. Theft of business inventory.
D. Damage due to a gradual leak.

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130. Which is true about the tax treatment of bad debts for a cash-basis taxpayer?
A. They can deduct a bad debt when written off.
B. They cannot deduct bad debts.
C. They can deduct bad debts only if related to inventory.
D. They can amortize bad debts over 5 years.

________________________________________
131. Which of the following is not subject to the Net Investment Income Tax (NIIT)?
A. Rental income
B. Dividends
C. Wages
D. Capital gains

________________________________________
132. Which of the following items is deductible as a business expense?
A. Fines and penalties
B. Political contributions
C. Advertising expenses
D. Personal living expenses

________________________________________
133. A sole proprietor purchases new office equipment costing $10,000. How can this expense be treated under Section 179?
A. It must be depreciated over its useful life.
B. It can be fully deducted in the year of purchase.
C. Only 50% of the cost can be deducted in the year of purchase.
D. It is not deductible at all.

________________________________________
134. What is the primary tax benefit of accelerated depreciation methods?
A. It increases taxable income in later years.
B. It reduces tax liability in earlier years.
C. It provides an additional deduction beyond the cost of the asset.
D. It eliminates the need for a depreciation schedule.

________________________________________
135. When a taxpayer exchanges real property used in a business for similar property under Section 1031, the realized gain is:
A. Recognized immediately.
B. Deferred until the replacement property is sold.
C. Never recognized.
D. Taxed only if the exchange exceeds $1 million.

________________________________________
136. A taxpayer earns $100,000 in active income and $10,000 in passive losses. What portion of the passive losses can they deduct?
A. $0
B. $10,000
C. $25,000
D. $100,000

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137. For tax purposes, the basis of property received as an inheritance is:
A. The fair market value at the date of death.
B. The decedent’s adjusted basis.
C. Zero, until the property is sold.
D. The lower of the decedent’s basis or FMV.

________________________________________
138. A business meal expense is deductible if:
A. It includes lavish entertainment.
B. The expense is directly related to business.
C. It is incurred for personal reasons.
D. It exceeds $500 per person.

________________________________________
139. What is the maximum federal gift tax exclusion for 2024?
A. $12,000
B. $15,000
C. $17,000
D. $20,000

________________________________________
140. A taxpayer donates stock worth $5,000 with a basis of $3,000 to a qualified charity. How much can they deduct?
A. $0
B. $3,000
C. $5,000
D. $8,000

________________________________________
141. Which of the following is considered an ordinary and necessary business expense?
A. Club membership fees for personal use
B. Contributions to a political campaign
C. Office rent
D. Personal groceries

________________________________________
142. Which of the following is not a permanent difference in tax accounting?
A. Tax-exempt interest
B. Depreciation differences
C. Fines and penalties
D. Life insurance proceeds

________________________________________
143. A taxpayer sells property to a related party. Under the tax code:
A. Losses on the sale are disallowed.
B. Gains are always exempt from taxation.
C. Both gains and losses are deferred.
D. The related party must pay the tax.

________________________________________
144. Which of the following is an example of a qualified retirement plan?
A. Roth IRA
B. SEP IRA
C. Health Savings Account (HSA)
D. Education Savings Account (ESA)

________________________________________
145. How are medical expenses treated on a taxpayer’s return?
A. Fully deductible regardless of amount
B. Deductible to the extent they exceed 7.5% of AGI
C. Deductible to the extent they exceed 10% of AGI
D. Not deductible under any circumstances

________________________________________
146. What is the penalty for failing to file a tax return by the due date?
A. 0.5% of unpaid taxes per month
B. 5% of unpaid taxes per month
C. 10% of unpaid taxes per month
D. 25% of unpaid taxes per year

________________________________________
147. Which of the following income is not subject to federal income tax?
A. Alimony received under pre-2019 agreements
B. Disability income for a job-related injury
C. Lottery winnings
D. Tips received from customers

________________________________________
148. A taxpayer who uses their home for both personal and business purposes can deduct home office expenses if:
A. The office is used exclusively for business.
B. The office is used for personal and business purposes.
C. The office occupies less than 50% of the home.
D. They own the home.

________________________________________
149. A taxpayer incurs $3,000 in moving expenses for a job relocation. How much can they deduct?
A. $0
B. $1,500
C. $3,000
D. $5,000
(Moving expenses are no longer deductible for most taxpayers.)
________________________________________
150. Which of the following is eligible for the Child Tax Credit?
A. A dependent over the age of 17
B. A child under the age of 17 with a valid SSN
C. A spouse earning income
D. A parent claiming head-of-household status

________________________________________
151. What is the maximum capital loss deduction allowed against ordinary income for an individual?
A. $1,500
B. $3,000
C. $5,000
D. $10,000

________________________________________
152. Which of the following qualifies for a Section 1244 stock loss?
A. Stock purchased in a large publicly traded corporation
B. Stock issued by a small domestic corporation
C. Bonds issued by a foreign corporation
D. Options on small business stock

________________________________________
153. How are installment sales treated for tax purposes?
A. Entire gain is recognized in the year of sale.
B. Gain is recognized as payments are received.
C. Gain is deferred indefinitely.
D. Installment sales are always tax-free.

________________________________________
154. Which of the following cannot be included as part of a taxpayer’s itemized deductions?
A. State income taxes
B. Mortgage interest on a primary residence
C. Personal credit card interest
D. Charitable contributions

155. Which of the following expenses is not deductible for a business?
A. Business supplies
B. Meals for clients
C. Penalties for breaking a contract
D. Office rent

________________________________________
156. When a corporation makes a charitable contribution, the deduction is limited to:
A. 10% of taxable income
B. 25% of taxable income
C. 50% of taxable income
D. 100% of taxable income

________________________________________
157. Which of the following is true regarding the sale of a primary residence?
A. Capital gains from the sale are always taxable.
B. Up to $500,000 in gains may be excluded for married couples filing jointly.
C. Only homeowners over the age of 65 qualify for exclusion.
D. The exclusion applies to any property type.

________________________________________
158. A tax credit differs from a tax deduction in that it:
A. Reduces taxable income.
B. Reduces the amount of tax owed.
C. Is subject to the alternative minimum tax.
D. Requires approval from the IRS.

________________________________________
159. Which of the following is considered a capital asset?
A. Business inventory
B. Land used in business
C. Shares of stock held for investment
D. Equipment used in business

________________________________________
160. A taxpayer sells their business and receives $100,000 in payments over five years. How is this income treated for tax purposes?
A. It is taxed entirely in the year of sale.
B. The taxpayer can elect to spread the income over the five years.
C. It is exempt from tax until the last payment is received.
D. It is taxed based on the capital gains rate only.

________________________________________
161. Which of the following is not a requirement for a business to qualify for the Research and Development (R&D) tax credit?
A. The business must be engaged in developing new or improved products.
B. The research must be technological in nature.
C. The business must spend at least 10% of its revenue on research.
D. The research must involve a process of experimentation.

________________________________________
162. A business incurs a casualty loss due to a fire. What amount can be deducted?
A. Only the insurance reimbursement received.
B. The difference between the property’s fair market value before and after the fire.
C. The full value of the property, regardless of the insurance claim.
D. No deduction is allowed for casualty losses.

________________________________________
163. Which of the following expenses is typically not deductible as a business expense?
A. Salaries and wages paid to employees
B. Interest on business loans
C. Meals and entertainment for employees
D. Fines paid for violating government regulations

________________________________________
164. Which of the following entities is subject to a corporate income tax?
A. Partnerships
B. Sole proprietorships
C. Subchapter S corporations
D. C corporations

________________________________________
165. Which of the following expenses is deductible by a taxpayer who works from home?
A. Home office rent
B. Utility costs for the entire home
C. Meals for personal use
D. Personal mortgage interest

________________________________________
166. What is the purpose of a tax-deferred retirement account?
A. To avoid paying taxes on contributions entirely.
B. To pay taxes on contributions but avoid taxes on earnings.
C. To defer paying taxes on both contributions and earnings until retirement.
D. To make tax-free withdrawals after retirement.

________________________________________
167. Under the Tax Cuts and Jobs Act, the maximum corporate tax rate is:
A. 15%
B. 21%
C. 25%
D. 35%

________________________________________
168. Which of the following business expenses is generally not deductible?
A. Employee wages
B. Business loan interest
C. Political contributions
D. Business insurance premiums

________________________________________
169. A taxpayer receives stock options from their employer. These options are subject to tax when:
A. They are granted to the taxpayer.
B. The stock is sold.
C. The options are exercised.
D. The options vest.

________________________________________
170. Which of the following is not a criterion for tax-exempt status under Section 501(c)(3)?
A. The organization is charitable.
B. The organization does not participate in political campaigns.
C. The organization makes a profit for its shareholders.
D. The organization operates for the public benefit.

________________________________________
171. When a taxpayer donates appreciated property to a qualified charity, the deduction is based on:
A. The fair market value of the property.
B. The purchase price of the property.
C. The lesser of fair market value or purchase price.
D. The tax basis of the property.

________________________________________
172. How are dividends received by a U.S. corporation from a foreign subsidiary taxed?
A. They are always taxable at full rate.
B. They are subject to the Foreign Tax Credit.
C. They are exempt from U.S. taxes.
D. They are taxed as long-term capital gains.

________________________________________
173. In which of the following cases is income earned from the sale of inventory taxed as ordinary income?
A. When the sale price exceeds the fair market value.
B. When the property is sold at a loss.
C. When the sale is made in the ordinary course of business.
D. When the property is considered a capital asset.

________________________________________
174. A taxpayer owns a piece of business property with a cost basis of $100,000. They sell the property for $120,000. What is the taxable gain?
A. $100,000
B. $120,000
C. $20,000
D. $10,000

________________________________________
175. A business can generally deduct the cost of which of the following employee-related expenses?
A. Health insurance premiums
B. Employee retirement plan contributions
C. Employee education expenses
D. All of the above

________________________________________
176. Which of the following qualifies as a tax-deductible education expense for a business?
A. A business owner’s personal college tuition
B. Employee education related to job skills
C. Employee tuition for personal development
D. Childcare costs for employees

________________________________________
177. What is the tax treatment of interest on bonds issued by a state or local government?
A. The interest is subject to federal income tax.
B. The interest is exempt from federal income tax.
C. The interest is subject to both state and federal income tax.
D. The interest is subject to tax only if the bond is sold.

________________________________________
178. Which of the following business deductions is typically limited by the IRS?
A. Charitable contributions
B. Employee wages
C. Depreciation
D. Meals and entertainment expenses

________________________________________
179. What is the maximum amount of earned income that can be excluded from taxes under the Earned Income Tax Credit (EITC)?
A. $10,000
B. $15,000
C. $20,000
D. $25,000

________________________________________
180. How are partnerships taxed?
A. They are taxed at the individual partner’s rate.
B. They are taxed at the partnership level.
C. They are taxed as corporations.
D. They are taxed at the federal level only.

181. A business has a net operating loss (NOL) in one year. How can the business use the NOL to reduce taxes in future years?
A. Carry the NOL forward to future tax years.
B. Carry the NOL back to prior tax years.
C. Apply for a refund immediately.
D. The NOL cannot be used to reduce taxes in future years.

________________________________________
182. Which of the following items is a deductible business expense for tax purposes?
A. Cost of personal insurance
B. Cost of business insurance premiums
C. Cost of personal mortgage interest
D. Cost of personal food and entertainment

________________________________________
183. What is the tax treatment of income from a Limited Liability Company (LLC) taxed as a partnership?
A. LLC income is taxed at the entity level only.
B. LLC income is taxed at the individual level only.
C. LLC income is taxed at both the entity and individual levels.
D. LLC income is exempt from federal taxes.

________________________________________
184. Which of the following describes a tax-deferred retirement plan?
A. Contributions are made after-tax, and withdrawals are tax-free.
B. Contributions are made before-tax, and withdrawals are taxed.
C. Contributions are made after-tax, and withdrawals are taxed.
D. Contributions are made before-tax, and withdrawals are tax-free.

________________________________________
185. When is a business required to pay estimated taxes?
A. Only if its taxable income is over $1 million.
B. Only if it has employees.
C. Only if it is a corporation.
D. If it expects to owe $1,000 or more in taxes for the year.

________________________________________
186. Which of the following business expenses is generally not deductible?
A. Salaries and wages paid to employees
B. Employee health insurance premiums
C. Payments made to stockholders in a corporation
D. Rent paid for office space

________________________________________
187. A business owner who is self-employed can generally deduct which of the following?
A. Home office expenses
B. Meals and entertainment expenses for personal use
C. Life insurance premiums for personal coverage
D. Contributions to a personal retirement account

________________________________________
188. Which of the following types of property is eligible for depreciation deductions?
A. Personal-use property
B. Land
C. Business buildings and equipment
D. Stocks and bonds

________________________________________
189. How is the tax treatment of a business’s capital gain determined?
A. Capital gains are taxed at the ordinary income tax rate.
B. Capital gains are taxed at the capital gains tax rate.
C. Capital gains are always tax-exempt.
D. Capital gains are taxed at both the ordinary income and capital gains rates.

________________________________________
190. Which of the following would be considered a “tax shelter” for a business?
A. Tax-deferred retirement plans
B. Real estate investments
C. Depreciation deductions on business assets
D. All of the above

________________________________________
191. Which of the following is a tax advantage of choosing to structure a business as an S Corporation?
A. No taxes are owed on profits, regardless of income.
B. The business profits are taxed only once at the shareholder level.
C. Shareholders can avoid paying self-employment taxes.
D. S corporations can avoid income tax altogether.

________________________________________
192. A company purchases new equipment for $50,000 and takes a Section 179 deduction of $25,000. What is the remaining cost basis for depreciation purposes?
A. $50,000
B. $25,000
C. $30,000
D. $20,000

________________________________________
193. What is the maximum deduction a business can take for meals and entertainment expenses under the current tax laws?
A. 100% of the expense
B. 50% of the expense
C. 25% of the expense
D. 75% of the expense

________________________________________
194. If a business owner uses their personal vehicle for business purposes, which of the following is true?
A. The business owner can deduct all car expenses as business expenses.
B. Only the portion of car expenses related to business use is deductible.
C. No vehicle expenses can be deducted unless the vehicle is owned by the business.
D. The business owner must pay self-employment tax on the car expenses.

________________________________________
195. Which of the following is generally true about the tax treatment of life insurance premiums for a business?
A. Life insurance premiums for employees are always deductible.
B. Life insurance premiums for the business owner are generally deductible.
C. Life insurance premiums are not deductible unless the business is the beneficiary.
D. Life insurance premiums are never deductible.

________________________________________
196. A taxpayer who contributes to a traditional IRA can generally deduct:
A. Contributions up to the maximum contribution limit.
B. Only the portion of the contribution made by the employer.
C. Contributions to a Roth IRA.
D. Contributions to any type of retirement account.

________________________________________
197. How are capital losses from the sale of business property treated for tax purposes?
A. They can only be deducted from future capital gains.
B. They can offset ordinary income up to $3,000 per year.
C. They cannot be deducted for tax purposes.
D. They are treated the same as ordinary income losses.

________________________________________
198. What is the tax treatment of a business’s contribution to an employee’s 401(k) plan?
A. The contribution is subject to payroll taxes but not income taxes.
B. The contribution is not deductible by the business.
C. The contribution is tax-deductible by the business and is not taxable to the employee until withdrawn.
D. The contribution is tax-exempt for both the business and employee.

________________________________________
199. Which of the following is considered a tax-exempt business activity?
A. Operating a business that provides education to the public
B. Operating a business that generates income from selling personal services
C. Operating a business that sells products for profit
D. Operating a business that provides temporary staffing services

________________________________________
200. What is the maximum amount that a business can deduct for meals related to business activities?
A. 25% of the total meal expense
B. 50% of the total meal expense
C. 75% of the total meal expense
D. 100% of the total meal expense

________________________________________
201. Which of the following is true regarding tax credits for business owners?
A. Business tax credits are always refundable.
B. Business tax credits reduce taxable income.
C. Business tax credits reduce the amount of tax owed, not taxable income.
D. Business tax credits are the same as tax deductions.

________________________________________
202. Which of the following types of business income is subject to self-employment tax?
A. Wages paid to employees
B. Profits from a sole proprietorship
C. Interest from business investments
D. Dividends paid to shareholders

________________________________________
203. What is the impact of a business receiving a tax refund from the IRS?
A. It increases the business’s taxable income.
B. It decreases the business’s taxable income.
C. It reduces the business’s deductions.
D. It has no impact on taxable income.

________________________________________
204. Which of the following is generally not deductible by a business for tax purposes?
A. Rent for business premises
B. Employee salary
C. Business owner’s personal expenses
D. Business loan interest

________________________________________
205. Which of the following best describes a tax-deferred retirement account?
A. Withdrawals are taxed as ordinary income when taken out.
B. Contributions are taxed immediately, but withdrawals are tax-free.
C. Contributions are tax-free, and withdrawals are taxed as capital gains.
D. Contributions are taxable, and withdrawals are tax-exempt.

________________________________________
206. How are costs related to employee health insurance generally treated for tax purposes?
A. They are taxable to the employee.
B. They are deductible by the business but not by the employee.
C. They are deductible by both the business and the employee.
D. They are not deductible by either the business or the employee.

207. What is the primary purpose of tax credits for businesses?
A. To reduce the business’s taxable income
B. To reduce the amount of tax the business owes
C. To reduce payroll taxes
D. To incentivize the business to pay taxes on time

________________________________________
208. Which of the following is an example of a tax-deductible business expense?
A. A business’s personal entertainment expenses
B. Business supplies used for production
C. Contributions to personal retirement plans
D. Personal travel expenses for business owners

________________________________________
209. What is the tax treatment of an asset sale by a corporation?
A. The sale of assets by a corporation is not taxed.
B. The sale may result in ordinary income or capital gains, depending on the asset sold.
C. The sale results in taxable income only if the corporation is in a loss position.
D. The sale of assets is always taxed as ordinary income.

________________________________________
210. How does depreciation affect taxable income for a business?
A. Depreciation increases taxable income.
B. Depreciation decreases taxable income.
C. Depreciation has no impact on taxable income.
D. Depreciation results in a tax refund.

________________________________________
211. Which of the following would not be considered a tax-deductible expense for a business?
A. Interest on a business loan
B. Expenses related to business meals and entertainment
C. Personal expenses of the business owner
D. Business office rent

________________________________________
212. A company has a net operating loss (NOL) in one year. What is the primary purpose of carrying the NOL forward?
A. To reduce taxes in previous years
B. To offset taxable income in future years
C. To increase the company’s tax refund
D. To create tax credits for future use

________________________________________
213. Which of the following tax advantages does an LLC enjoy when compared to a corporation?
A. LLC members pay no self-employment tax.
B. LLCs are not subject to double taxation.
C. LLCs can raise capital more easily than corporations.
D. LLCs have no tax filing requirements.

________________________________________
214. Which of the following is true about tax-deferred contributions to a traditional 401(k) plan?
A. Contributions are taxed at the time of withdrawal.
B. Contributions reduce taxable income in the year they are made.
C. Contributions are not deductible by the employee.
D. Contributions are taxed both when made and when withdrawn.

________________________________________
215. How is the tax treatment of a business loan generally classified?
A. Interest on the loan is deductible, but principal repayments are not.
B. Principal repayments are deductible, but interest is not.
C. Both principal and interest are deductible.
D. Neither principal nor interest are deductible.

________________________________________
216. What is the tax treatment of a business that operates as an S corporation?
A. The corporation pays tax on its income, and shareholders also pay tax on their share of the income.
B. The corporation itself does not pay taxes; shareholders report income on their personal tax returns.
C. The corporation is exempt from all federal taxes.
D. Shareholders are taxed only when they receive dividends.

________________________________________
217. What is the maximum allowable deduction for business entertainment expenses under current tax law?
A. 75% of the cost of entertainment
B. 50% of the cost of meals and entertainment
C. 100% of the cost of entertainment
D. Entertainment expenses are not deductible at all.

________________________________________
218. Which of the following would be classified as a capital asset for tax purposes?
A. Inventory
B. Real property held for sale to customers
C. A building used in business operations
D. Short-term investments

________________________________________
219. How are self-employment taxes calculated for a business owner?
A. They are based on the owner’s net income from the business.
B. They are based on the total income of the business, including dividends.
C. They are calculated as a flat percentage of all business revenues.
D. Self-employment taxes are not required for business owners.

________________________________________
220. What is the primary benefit of establishing a tax-deferred retirement plan for business owners?
A. Taxable income is reduced, and tax payments are delayed until retirement.
B. Business owners can access retirement funds without penalties.
C. Business owners are not required to make contributions.
D. Contributions are tax-free when withdrawn.

________________________________________
221. Which of the following tax structures allows profits and losses to be passed directly to owners without being taxed at the business level?
A. Sole proprietorship
B. Corporation
C. S Corporation
D. Partnership

________________________________________
222. Which of the following is a primary consideration when choosing a business structure from a tax perspective?
A. The ability to raise capital
B. The potential for tax deferral
C. The complexity of tax filing requirements
D. The personal liability of business owners

________________________________________
223. Which of the following best describes an asset that is not subject to depreciation for tax purposes?
A. A business vehicle
B. A factory building
C. Land
D. Computer equipment

________________________________________
224. A business purchases office equipment for $10,000 and takes a Section 179 deduction of $5,000. What is the remaining depreciable basis for the equipment?
A. $10,000
B. $5,000
C. $7,000
D. $15,000

________________________________________
225. How are dividend payments to shareholders generally taxed for tax purposes?
A. They are taxed as ordinary income.
B. They are tax-free to the shareholder.
C. They are taxed as long-term capital gains.
D. They are taxed at the corporate tax rate.

________________________________________
226. Which of the following tax strategies is often used to reduce taxable income in a high-income year?
A. Increasing inventory levels
B. Contributing to retirement accounts
C. Taking out a loan
D. Paying higher employee salaries

________________________________________
227. Which of the following business transactions might result in capital gains tax?
A. Selling inventory
B. Selling depreciable business assets
C. Selling bonds issued by the business
D. Selling stock in a corporation

________________________________________
228. What is the tax treatment of a business’s retirement contributions to employee plans?
A. Contributions are deductible by the business and not taxable to the employee until withdrawal.
B. Contributions are taxable to the employee when made.
C. Contributions are not deductible by the business but are tax-exempt to the employee.
D. Contributions are deductible by the business but taxable to the employee at the time of contribution.

________________________________________
229. What is the primary purpose of tax deductions for a business?
A. To reduce taxable income
B. To reduce the amount of tax the business owes
C. To eliminate the need to file tax returns
D. To increase the business’s tax refund

________________________________________
230. A business is considering whether to use an LLC or a corporation for its tax structure. What is one tax-related benefit of an LLC?
A. LLC owners can avoid paying income taxes.
B. LLCs are subject to a lower tax rate than corporations.
C. LLCs are not subject to double taxation.
D. LLCs can deduct personal expenses as business expenses.

231. Which of the following is a tax benefit of incorporating a business?
A. Corporations pay lower income taxes than sole proprietorships.
B. Corporations are exempt from self-employment taxes.
C. Corporations can deduct business expenses on behalf of employees.
D. Corporations avoid paying taxes on their earnings.

________________________________________
232. How are losses from the sale of business assets treated for tax purposes?
A. Losses are deducted from the business’s taxable income.
B. Losses are carried forward to reduce taxes in future years.
C. Losses reduce the overall value of the business but do not affect taxes.
D. Losses from asset sales are always taxed as ordinary income.

________________________________________
233. What tax benefit does a business owner receive by claiming tax deductions for business travel expenses?
A. The business can claim a refund for travel-related expenses.
B. Travel expenses reduce taxable income and, therefore, taxes owed.
C. Business owners are exempt from paying taxes on travel expenses.
D. Travel expenses are deductible only if the travel results in a profit.

________________________________________
234. What is the maximum amount an individual can contribute to an IRA (Individual Retirement Account) in 2024?
A. $3,000
B. $6,500
C. $10,000
D. $19,000

________________________________________
235. Which of the following is considered a tax-exempt fringe benefit for employees?
A. Health insurance premiums paid by the employer
B. Cash bonuses paid by the employer
C. Employer-paid parking fines
D. Employer contributions to an employee’s retirement plan

________________________________________
236. What tax treatment applies when a corporation issues stock to raise capital?
A. The corporation must pay a tax on the proceeds from the stock issuance.
B. The issuance of stock is generally not taxed.
C. The corporation receives a tax credit for issuing stock.
D. The corporation’s earnings are taxed at the time of stock issuance.

________________________________________
237. When does a business owner have to pay self-employment taxes?
A. When the business generates a profit
B. Only when the business makes more than $100,000
C. When the business hires employees
D. When the business has losses

________________________________________
238. Which of the following expenses is generally deductible for tax purposes for a business?
A. Lobbying expenses
B. Fines for breaking the law
C. Business expenses related to operating a business
D. Personal living expenses

________________________________________
239. How are dividends taxed for business owners in a corporation?
A. Dividends are taxed as capital gains for the business owners.
B. Dividends are taxed as ordinary income for business owners.
C. Dividends are tax-free for the business owners.
D. Dividends are taxed at the corporate tax rate, not the owner’s tax rate.

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240. What is a tax advantage of leasing assets rather than purchasing them?
A. Lease payments are generally not deductible for tax purposes.
B. Leasing does not require the company to pay taxes on the asset.
C. Lease payments are generally deductible as business expenses.
D. Leasing allows the business to avoid all tax obligations.

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241. How does a business benefit from a Section 179 deduction for equipment?
A. The business can deduct the cost of the equipment in the year it is purchased.
B. The business must wait several years before claiming the deduction.
C. The equipment is exempt from depreciation.
D. The business can only claim the deduction if the equipment is used for personal purposes.

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242. What is the general tax treatment for a business that operates as a sole proprietorship?
A. The business pays taxes on its profits at the corporate tax rate.
B. The business owner reports the business income and expenses on their personal tax return.
C. The business does not need to file a tax return.
D. The business is taxed separately from the business owner’s income.

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243. Which of the following taxes is specifically designed to fund Social Security and Medicare for self-employed individuals?
A. Federal income tax
B. Self-employment tax
C. State income tax
D. Corporate income tax

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244. How are tax-exempt organizations, such as charities, treated under the federal tax code?
A. They are exempt from paying all types of taxes.
B. They are exempt from income taxes but must still pay payroll taxes.
C. They are taxed on profits derived from unrelated business activities.
D. They are subject to the same taxes as for-profit corporations.

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245. What is the tax advantage of using an accelerated depreciation method like MACRS (Modified Accelerated Cost Recovery System)?
A. The business can claim larger deductions in the early years of an asset’s life.
B. The business can avoid depreciation altogether.
C. Depreciation deductions are not limited to the value of the asset.
D. The business receives a tax credit for depreciation.

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246. What is the tax treatment of employee bonuses paid by a business?
A. Bonuses are not considered taxable income.
B. Bonuses are treated as ordinary income and subject to payroll taxes.
C. Bonuses are taxed as long-term capital gains.
D. Bonuses are deducted from taxable income, reducing the business’s tax liability.

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247. How does a tax-deferred investment like a 401(k) plan affect a business owner’s taxes?
A. Contributions to a 401(k) reduce taxable income in the year the contribution is made.
B. 401(k) contributions are taxed when made but are tax-free when withdrawn.
C. Contributions to a 401(k) are subject to payroll taxes.
D. 401(k) contributions are deducted from the business’s taxable income.

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248. When a business pays for employee health insurance, how does this expense affect taxes?
A. The business can deduct the cost of the health insurance as a business expense.
B. The business must pay taxes on the health insurance premiums.
C. The employee pays taxes on the health insurance benefits provided by the employer.
D. The health insurance expense is only deductible for C-corporations.

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249. Which of the following describes the tax treatment of a partnership?
A. Partnerships are subject to double taxation.
B. The partnership itself is not taxed; the income is passed through to individual partners.
C. The partnership is taxed at the corporate tax rate.
D. Partnerships do not need to file tax returns.

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250. Which of the following is a common tax strategy used by businesses to defer taxes?
A. Accelerating income recognition
B. Prepaying expenses
C. Reducing capital expenditures
D. Delaying tax filings

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251. Which of the following is a potential tax advantage of investing in qualified retirement plans?
A. Contributions are taxed at a lower rate than ordinary income.
B. Contributions are not subject to income tax until withdrawn.
C. Contributions are always tax-free.
D. Contributions are taxed when made but exempt when withdrawn.

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252. How does a business qualify for the research and development (R&D) tax credit?
A. The business must file for the credit each year.
B. The business must be engaged in qualifying R&D activities.
C. Only large corporations are eligible for the R&D tax credit.
D. The R&D credit is only available for new businesses.

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253. What is the tax implication of a business making charitable contributions?
A. Contributions are deductible up to a set percentage of the business’s taxable income.
B. Charitable contributions are not tax-deductible for businesses.
C. Contributions are taxed as business income.
D. Businesses can claim an unlimited deduction for charitable contributions.

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254. When a business makes a capital investment in real estate, what is the tax treatment of the property’s depreciation?
A. Depreciation on the property is not deductible.
B. Depreciation is deducted over the useful life of the property, reducing taxable income.
C. Depreciation is only deductible when the property is sold.
D. Depreciation is deductible in the year the property is purchased.

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255. What is the tax advantage of using tax credits instead of deductions?
A. Tax credits directly reduce the tax owed, while deductions reduce taxable income.
B. Tax credits are subject to a percentage limit, while deductions are not.
C. Tax credits reduce taxable income, while deductions reduce the tax rate.
D. Tax credits are always refundable, while deductions are not.

256. Which of the following is a tax consequence of a business owner operating as an S Corporation?
A. The S Corporation pays taxes on its income at the corporate tax rate.
B. Income and losses are passed through to shareholders and reported on their personal tax returns.
C. S Corporation income is taxed at a lower rate than other forms of business entities.
D. S Corporation shareholders are not responsible for paying taxes on the income passed through.

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257. How are capital gains taxed for a business that sells an asset?
A. Capital gains are taxed as ordinary income.
B. Capital gains are taxed at a reduced rate.
C. Capital gains are tax-free if the asset is held for more than one year.
D. Capital gains are not taxed for businesses.

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258. What tax form must a C Corporation file annually with the IRS?
A. Form 1040
B. Form 1065
C. Form 1120
D. Form 990

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259. Which of the following can be deducted as a business expense for tax purposes?
A. Charitable donations made by the owner personally
B. Business-related meals and entertainment
C. Personal medical expenses
D. Mortgage payments on a personal home

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260. How are dividends received by a corporation from another corporation generally taxed?
A. As ordinary income
B. As capital gains
C. Tax-exempt
D. The dividends are not taxed unless they exceed a certain threshold

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261. Which tax form does a self-employed individual use to report income and expenses?
A. Form 1040
B. Form 1065
C. Schedule C (Form 1040)
D. Form 1120

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262. What is the maximum tax deduction allowed for business meals under the IRS rules for 2024?
A. 50% of the cost
B. 60% of the cost
C. 70% of the cost
D. 100% of the cost

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263. Which of the following is NOT a business tax deduction?
A. Cost of goods sold
B. Salaries and wages paid to employees
C. Personal expenses unrelated to the business
D. Depreciation of business assets

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264. In a business, which of the following expenses must be capitalized rather than deducted?
A. Routine office supplies
B. Repairs and maintenance
C. Depreciation on machinery
D. Employee salaries

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265. What is the tax treatment of employee stock options for a business?
A. They are immediately taxed as ordinary income.
B. They are taxed when exercised or sold, depending on the type of stock option.
C. They are not taxable until the employee sells the stock.
D. They are never taxable to employees.

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266. When can a business claim the research and development (R&D) tax credit?
A. After the business has been operational for five years
B. When the business conducts qualified R&D activities and incurs related expenses
C. Only if the business is a publicly traded company
D. When the business has no taxable income

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267. How are rental income and expenses treated for tax purposes in a business?
A. Rental income is not subject to taxes, and related expenses are not deductible.
B. Rental income is taxable, and rental expenses can be deducted from taxable income.
C. Rental income is subject to capital gains tax, and expenses are not deductible.
D. Rental income and expenses are only taxable if the rental property is sold.

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268. What is a key tax difference between a partnership and a corporation?
A. Partnerships are taxed on their income, while corporations are not.
B. Partnerships do not file tax returns, but corporations must file annually.
C. Partnerships are pass-through entities, while corporations are taxed separately from owners.
D. Partnerships are taxed at lower rates than corporations.

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269. What is the general tax treatment of a business’s income from the sale of inventory?
A. Income from the sale of inventory is taxed at a capital gains rate.
B. Income is treated as ordinary income, and the business must pay taxes accordingly.
C. The income is exempt from tax if the business holds the inventory for more than a year.
D. The income is tax-free if it is used to reinvest in the business.

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270. What is the tax benefit of accelerated depreciation methods for a business?
A. The business can increase its depreciation deductions in the early years, reducing taxable income.
B. Accelerated depreciation is not allowed for tax purposes.
C. Accelerated depreciation reduces the tax rate applied to the business’s income.
D. The business can avoid paying taxes on the depreciation.

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271. Which of the following is a tax benefit of operating a business as a limited liability company (LLC)?
A. LLCs avoid paying income taxes altogether.
B. LLC owners can avoid self-employment taxes.
C. LLCs are subject to double taxation on income.
D. LLCs offer flexibility in how they are taxed (e.g., as a partnership or corporation).

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272. What is the primary tax advantage of contributing to a qualified retirement plan?
A. Contributions are exempt from payroll taxes.
B. Contributions reduce taxable income in the year they are made.
C. Contributions are tax-free when withdrawn.
D. Contributions do not need to be reported to the IRS.

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273. How are business losses handled for tax purposes when a business operates as a corporation?
A. Losses can only be carried forward to offset future income.
B. Losses are passed through to shareholders and deducted on their individual tax returns.
C. Losses reduce the corporation’s taxable income in the current year.
D. Losses must be written off and cannot be used to offset future income.

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274. What tax benefit does a business receive from deducting employee retirement plan contributions?
A. The business reduces its taxable income, which in turn reduces the taxes owed.
B. The business receives a tax credit for retirement contributions.
C. The business avoids paying self-employment taxes.
D. Contributions are not deductible for tax purposes.

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275. Which of the following describes a tax credit?
A. A reduction in the amount of income that is taxable.
B. A direct reduction in the amount of taxes owed.
C. A deduction that lowers the taxable income of a business.
D. A reduction in the tax rate applied to taxable income.

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276. How does a business benefit from a net operating loss (NOL)?
A. The NOL can be carried forward to offset future taxable income.
B. The NOL automatically results in a tax refund.
C. The NOL can be deducted in the year it occurs, reducing taxes owed.
D. The NOL increases taxable income in future years.

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277. What is the tax treatment of a business’s loan interest payments?
A. Interest payments are not deductible for tax purposes.
B. Interest payments are deductible as a business expense.
C. Interest payments are deducted only if the loan is used to purchase property.
D. Interest payments are taxed as income for the business.

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278. What type of tax does a business generally pay on its earnings?
A. Self-employment tax
B. Corporate income tax
C. Sales tax
D. Excise tax

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279. Which of the following is NOT a tax strategy for a business?
A. Deferring income recognition to the following year
B. Accelerating deductible expenses into the current year
C. Expensing large capital purchases
D. Using tax credits to reduce taxes owed

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280. What is the tax treatment of a business’s charitable contribution?
A. Charitable contributions are always tax-free for the business.
B. Contributions are deducted from taxable income, reducing the business’s tax liability.
C. Contributions are taxed as income to the business.
D. Charitable contributions can only be made by corporations, not LLCs.

281. What is the primary tax benefit of using a cash method of accounting for a business?
A. Businesses can defer taxes until income is received or expenses are paid.
B. Businesses can accelerate deductions by recognizing income when earned.
C. The business will pay fewer taxes overall.
D. Businesses are required to use the accrual method of accounting instead.

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282. Which of the following is NOT a tax-deductible business expense?
A. Interest on business loans
B. Salaries paid to employees
C. Personal groceries
D. Depreciation of business equipment

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283. How are interest expenses on a business loan generally treated for tax purposes?
A. They are fully deductible as a business expense.
B. They are not deductible unless the loan is secured by property.
C. They are subject to special tax treatment depending on the type of loan.
D. Interest expenses are taxed as capital gains.

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284. A business that qualifies for tax-exempt status must file which form with the IRS?
A. Form 1120
B. Form 1040
C. Form 990
D. Form 1065

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285. What is the maximum amount a business can deduct for a Section 179 deduction in the tax year 2024?
A. $1,000,000
B. $500,000
C. $25,000
D. $10,000

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286. Which of the following types of income is generally subject to self-employment taxes for a business owner?
A. Dividend income
B. Rental income from personal property
C. Income from a business operated by the owner
D. Interest income

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287. What is the tax effect when a business owner sells a capital asset at a gain?
A. The gain is taxed as ordinary income.
B. The gain is taxed at long-term capital gains rates, if applicable.
C. The gain is not taxable if the asset is sold to a family member.
D. The gain is not taxable if the asset was held for less than a year.

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288. How are payments made to independent contractors generally taxed for a business?
A. Payments to independent contractors are subject to payroll taxes.
B. Payments to independent contractors are tax-free.
C. Payments are reported on Form 1099 and the contractor is responsible for self-employment taxes.
D. Payments to independent contractors are taxed as ordinary income to the business.

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289. Which of the following businesses is generally eligible to file as an S Corporation?
A. Sole proprietorships
B. C Corporations
C. Partnerships with more than 100 partners
D. Businesses that have foreign shareholders

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290. A business that sells property for a loss can generally treat the loss as:
A. An ordinary loss deductible in the current tax year.
B. A capital loss that can only offset capital gains.
C. A loss that is not deductible for tax purposes.
D. A loss that can be carried forward to offset future gains.

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291. Which of the following best describes the tax treatment of a business’s research and development (R&D) expenses?
A. R&D expenses are capitalized and deducted over several years.
B. R&D expenses are not deductible.
C. R&D expenses are fully deductible in the year incurred.
D. R&D expenses must be amortized over five years.

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292. What is the tax treatment for business-related travel expenses?
A. Travel expenses are deductible only if the trip is for more than 10 days.
B. Travel expenses are fully deductible for business-related travel.
C. Travel expenses are only deductible if they are paid for by the business, not the employee.
D. Travel expenses must be reported as income.

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293. What is the tax treatment of a loss from the sale of business property?
A. Losses from the sale of business property are generally deductible.
B. Losses from the sale of business property are not deductible.
C. The loss is considered a capital loss and can only offset capital gains.
D. The loss is carried forward and only deductible in future years.

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294. Which of the following statements is true about business tax credits?
A. Business tax credits reduce taxable income.
B. Business tax credits reduce the amount of taxes owed, dollar for dollar.
C. Business tax credits increase the amount of taxable income.
D. Business tax credits are only available to corporations.

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295. How does a business qualify for a tax deduction for a charitable contribution?
A. The contribution must be made to a qualified 501(c)(3) organization.
B. The contribution must be made in cash only.
C. The contribution must exceed $5,000.
D. The business must provide the IRS with a receipt for the contribution.

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296. Which of the following describes a “tax deferral” for a business?
A. A business cannot defer taxes.
B. A tax deferral allows a business to delay the payment of taxes until a future year.
C. A tax deferral results in a permanent reduction in taxes owed.
D. Tax deferrals are only available for small businesses.

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297. Which of the following would qualify as a tax deduction for a business?
A. A home mortgage interest payment on a personal residence.
B. Business-related entertainment expenses that are not directly related to a business meeting.
C. Business insurance premiums.
D. Personal gifts to family members.

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298. How is business income generally reported for an S Corporation?
A. The S Corporation pays taxes on the income.
B. The income is reported on individual tax returns of the shareholders.
C. The income is not taxed at all.
D. The income is subject to self-employment taxes.

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299. A business is generally required to file its taxes by:
A. April 15th of each year.
B. The 15th day of the 4th month after the end of its tax year.
C. December 31st of each year.
D. The 15th day of the 3rd month following the end of its tax year.

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300. Which of the following is a key characteristic of a Limited Liability Company (LLC)?
A. LLCs must pay corporate income taxes.
B. LLCs provide the same level of liability protection as a corporation.
C. LLCs are required to have a board of directors.
D. LLCs can only be owned by corporations.

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301. How is a tax credit different from a tax deduction for a business?
A. A tax credit reduces taxable income, while a deduction reduces taxes owed.
B. A tax credit reduces taxes owed directly, while a deduction reduces taxable income.
C. A tax credit is refundable, while a deduction is not.
D. A tax credit increases taxable income.

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302. Which of the following business expenses are generally deductible?
A. Business-related travel and meals
B. Fines for violating tax laws
C. Salaries paid to owners and their families
D. Non-business personal expenses

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303. How does a business qualify for the research and development (R&D) tax credit?
A. The business must be located in a low-income area.
B. The business must have received approval from the IRS before beginning R&D activities.
C. The business must incur qualifying R&D expenses related to developing new products or processes.
D. The business must be a multinational corporation.

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304. When is a business required to pay estimated taxes?
A. Only if it expects to owe more than $1,000 in taxes for the year.
B. Only if it is a corporation.
C. Only if it has employees.
D. A business is never required to pay estimated taxes.

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