Federal Tax Exam 1 UPDATED ACTUAL
Exam Questions and CORRECT Answers
Example: In 2020, taxpayer placed in service $2,800,000 of § 179 property
what's the amount under 179 immediate expensing? - CORRECT ANSWER - [$1,040,000 -
($2,800,000 - $2,590,000)] [$1,040,000 - $210,000] = $830,000
Schedule ____ is Trade or business income - CORRECT ANSWER -C
Gross profit from sales - cost of goods = - CORRECT ANSWER - a return on capital
Business income does not include excluded and deferred ________ in schedule C - CORRECT
ANSWER - income
Schedule C includes revenue from what kinds of activities? - CORRECT ANSWER - sales
and services
5 Statutory limits on business expense deductions - CORRECT ANSWER - 1. Expenses
against public policy
2. Expenses relating to tax-exempt income
3. Capital expenditures
4. Prepaid Expenses
5. Personal expenses
are there deductions for fines, bribes, lobby expenditures, or political contributions? -
CORRECT ANSWER - no
Key man insurance premiums- no deduction if business is _______ of life insurance. -
CORRECT ANSWER - beneficiary
,All Personal: No _______ - CORRECT ANSWER - deduction (unless charity or something )
How do you deduct if there were mixed motives- business and personal? - CORRECT
ANSWER - 1. primary motive
- if business: 100% deductible
- if personal, 0% deductible
2. otherwise, allocate deduction to business portion
- meals 50%
entertainment 0%
commuting is __________ - CORRECT ANSWER - personal (not deductible)
Vehicle costs- actual costs _____ depreciation - CORRECT ANSWER - plus
what are deductible for a work away from home overnight? - CORRECT ANSWER -
transportation costs
meals- 50%
lodging
incidental costs
if its primary business, what percentage of each do you deduct?
airfare
hotel
meals - CORRECT ANSWER - airfare- 100% (airfare is all or none)
Hotel- 100%
Meals- 50%
, if its primary personal, what percentage of each do you deduct?
airfare
hotel
meals - CORRECT ANSWER - airfare- 0%
hotel- 50%
meals- only 50% of the days you worked
3 special business deductions - CORRECT ANSWER - 1. Start-up and organizational
expenditures
2. bad debts
3. losses on disposition of business assets
expense up to _________ and capitalize/amortize the rest for startup and organizational
expenditures - CORRECT ANSWER - $5,000
for bad debts, Accrual taxpayers can only use ______ write-off method - CORRECT
ANSWER - direct
for losses on disposition of business assets, recognized losses are ______, casualty losses are
______, and basis is amount of _____ is business asset is completely destroyed - CORRECT
ANSWER - deductible, limited, loss
how long is full tax yr - CORRECT ANSWER - 12 months
how long is short tax yr - CORRECT ANSWER - < 12 months
when does calendar yr end - CORRECT ANSWER - 12/31
Exam Questions and CORRECT Answers
Example: In 2020, taxpayer placed in service $2,800,000 of § 179 property
what's the amount under 179 immediate expensing? - CORRECT ANSWER - [$1,040,000 -
($2,800,000 - $2,590,000)] [$1,040,000 - $210,000] = $830,000
Schedule ____ is Trade or business income - CORRECT ANSWER -C
Gross profit from sales - cost of goods = - CORRECT ANSWER - a return on capital
Business income does not include excluded and deferred ________ in schedule C - CORRECT
ANSWER - income
Schedule C includes revenue from what kinds of activities? - CORRECT ANSWER - sales
and services
5 Statutory limits on business expense deductions - CORRECT ANSWER - 1. Expenses
against public policy
2. Expenses relating to tax-exempt income
3. Capital expenditures
4. Prepaid Expenses
5. Personal expenses
are there deductions for fines, bribes, lobby expenditures, or political contributions? -
CORRECT ANSWER - no
Key man insurance premiums- no deduction if business is _______ of life insurance. -
CORRECT ANSWER - beneficiary
,All Personal: No _______ - CORRECT ANSWER - deduction (unless charity or something )
How do you deduct if there were mixed motives- business and personal? - CORRECT
ANSWER - 1. primary motive
- if business: 100% deductible
- if personal, 0% deductible
2. otherwise, allocate deduction to business portion
- meals 50%
entertainment 0%
commuting is __________ - CORRECT ANSWER - personal (not deductible)
Vehicle costs- actual costs _____ depreciation - CORRECT ANSWER - plus
what are deductible for a work away from home overnight? - CORRECT ANSWER -
transportation costs
meals- 50%
lodging
incidental costs
if its primary business, what percentage of each do you deduct?
airfare
hotel
meals - CORRECT ANSWER - airfare- 100% (airfare is all or none)
Hotel- 100%
Meals- 50%
, if its primary personal, what percentage of each do you deduct?
airfare
hotel
meals - CORRECT ANSWER - airfare- 0%
hotel- 50%
meals- only 50% of the days you worked
3 special business deductions - CORRECT ANSWER - 1. Start-up and organizational
expenditures
2. bad debts
3. losses on disposition of business assets
expense up to _________ and capitalize/amortize the rest for startup and organizational
expenditures - CORRECT ANSWER - $5,000
for bad debts, Accrual taxpayers can only use ______ write-off method - CORRECT
ANSWER - direct
for losses on disposition of business assets, recognized losses are ______, casualty losses are
______, and basis is amount of _____ is business asset is completely destroyed - CORRECT
ANSWER - deductible, limited, loss
how long is full tax yr - CORRECT ANSWER - 12 months
how long is short tax yr - CORRECT ANSWER - < 12 months
when does calendar yr end - CORRECT ANSWER - 12/31
