Tax Accounting Exam #3 questions with
correct answers.
which taxes are deducted from an employees salary ANS - -Federal income tax
-FICA Taxes
-State income tax
What taxes do employers pay? ANS - -FICA Taxes
-Unemployment taxes
What is paid by the employer to the government ANS - Both the employee and employer half of FICA
taxes
Federal and state income tax withholding ANS - Prepayments for federal and state income taxes
withheld from employee's wages by the employer
Medicare rate ANS - 2.9%
Tax on self employment income ANS - Based on taxable income, individual pays both employee and
employer portions
Tax base for self employed income ANS - 92.35% x self employed income
How much can be deducted from individual taxable income ANS - 50%
How to calculate net income for a sole proprietorship ANS - Gross income - business expense
, When can a home office deduction be taken? ANS - When the office is used exclusively and on a regular
basis, OR if it is used exclusively for management activities if the taxpayer has no other fixed location
where such activities are conducted
How to deduct a home office ANS - Deduct 100% of direct costs and deduct indirect costs based on
usage between business and personal
What are limited liability companies ANS - An LLC is a company where the members can only lose what
they put in, unless they personally guarantee a loan
Entities that can have an LLC status ANS - Sole proprietorships and partnerships
What are guaranteed payments? ANS - Partners ARE NOT EMPLOYEES and receive guaranteed
payments instead of wages
Why are guaranteed payments paid? ANS - To compensate employees because they do not subject the
LLC to regular income and FICA Taxes
How are guaranteed payments taxed? ANS - Treated as ordinary income and self employment income
-Reduces ordinary income
Difference between a limited and general partner ANS - Limited partners are only liable for what they
contribute whereas general partners share the liability based on their % of partnership
Members of an LLC and their liability ANS - All have limited liability unless they personally guaranteed
the loan
What income from partnerships are subject to income and self-employment taxes ANS - General
partners pay SE tax on all of their business income, and limited partners pay SE tax on their guaranteed
payments
How to calculate initial basis ANS - Cash + adjusted basis of property contributed + share of debt for
which the partner is responsible
correct answers.
which taxes are deducted from an employees salary ANS - -Federal income tax
-FICA Taxes
-State income tax
What taxes do employers pay? ANS - -FICA Taxes
-Unemployment taxes
What is paid by the employer to the government ANS - Both the employee and employer half of FICA
taxes
Federal and state income tax withholding ANS - Prepayments for federal and state income taxes
withheld from employee's wages by the employer
Medicare rate ANS - 2.9%
Tax on self employment income ANS - Based on taxable income, individual pays both employee and
employer portions
Tax base for self employed income ANS - 92.35% x self employed income
How much can be deducted from individual taxable income ANS - 50%
How to calculate net income for a sole proprietorship ANS - Gross income - business expense
, When can a home office deduction be taken? ANS - When the office is used exclusively and on a regular
basis, OR if it is used exclusively for management activities if the taxpayer has no other fixed location
where such activities are conducted
How to deduct a home office ANS - Deduct 100% of direct costs and deduct indirect costs based on
usage between business and personal
What are limited liability companies ANS - An LLC is a company where the members can only lose what
they put in, unless they personally guarantee a loan
Entities that can have an LLC status ANS - Sole proprietorships and partnerships
What are guaranteed payments? ANS - Partners ARE NOT EMPLOYEES and receive guaranteed
payments instead of wages
Why are guaranteed payments paid? ANS - To compensate employees because they do not subject the
LLC to regular income and FICA Taxes
How are guaranteed payments taxed? ANS - Treated as ordinary income and self employment income
-Reduces ordinary income
Difference between a limited and general partner ANS - Limited partners are only liable for what they
contribute whereas general partners share the liability based on their % of partnership
Members of an LLC and their liability ANS - All have limited liability unless they personally guaranteed
the loan
What income from partnerships are subject to income and self-employment taxes ANS - General
partners pay SE tax on all of their business income, and limited partners pay SE tax on their guaranteed
payments
How to calculate initial basis ANS - Cash + adjusted basis of property contributed + share of debt for
which the partner is responsible
