WGU D557 SECTION 2 | QUESTIONS AND ANSWERS |
2025/2026 UPDATE | WITH COMPLETE SOLUTION!!
What are the similarities between corporate and individual tax treatment?
Answer - Gains and losses from property are handled similarly. Business
deductions apply for interest, taxes, and losses.
How do corporate and individual tax treatment differ? Answer - Corporations
have a flat tax rate, while individuals have progressive tax rates. Corporate
taxable income is simply gross income minus deductions.
What accounting periods can corporations choose? Answer - Corporations can
elect either a calendar year or a fiscal year.
What are Personal Service Corporations (PSCs)? Answer - Formed to provide
personal services (health, law, etc.). Services are substantially performed by
shareholder-employees. More than 10% of stock is owned by shareholder-
employees.
What tax year must S corporations and PSCs use? Answer - S Corps & PSCs
must use a fiscal year, unless a PSC makes a business purpose election or 444
election.
When is the cash method of accounting unavailable for corporations? Answer -
Corporations cannot use cash accounting, except for:
, S Corps
Farming corporations
Qualified PSCs
Corporations with <$29 million in annual gross receipts
How do related-party accruals affect tax deductions? Answer - Corporations
cannot deduct accruals until the related party reports the amount as income.
How must accrual basis taxpayers recognize gross income? Answer - Must
recognize gross income no later than when it is included in financial
statements.
How are capital gains taxed for corporations? Answer - Corporations do not
receive favorable tax rates on long-term capital gains. Capital gains are taxed at
the normal corporate tax rate.
Can corporations deduct net capital losses? Answer - Corporations cannot
deduct net capital losses against ordinary income. Capital losses can be carried
back 3 years and forward 5 years.
How is a long-term capital loss treated for corporations? Answer - Long-term
capital losses are treated as short-term capital losses.
What depreciation recapture rules apply to corporations? Answer - Both §
1245 & § 1250 recapture rules apply to corporations and individuals. § 1250
2025/2026 UPDATE | WITH COMPLETE SOLUTION!!
What are the similarities between corporate and individual tax treatment?
Answer - Gains and losses from property are handled similarly. Business
deductions apply for interest, taxes, and losses.
How do corporate and individual tax treatment differ? Answer - Corporations
have a flat tax rate, while individuals have progressive tax rates. Corporate
taxable income is simply gross income minus deductions.
What accounting periods can corporations choose? Answer - Corporations can
elect either a calendar year or a fiscal year.
What are Personal Service Corporations (PSCs)? Answer - Formed to provide
personal services (health, law, etc.). Services are substantially performed by
shareholder-employees. More than 10% of stock is owned by shareholder-
employees.
What tax year must S corporations and PSCs use? Answer - S Corps & PSCs
must use a fiscal year, unless a PSC makes a business purpose election or 444
election.
When is the cash method of accounting unavailable for corporations? Answer -
Corporations cannot use cash accounting, except for:
, S Corps
Farming corporations
Qualified PSCs
Corporations with <$29 million in annual gross receipts
How do related-party accruals affect tax deductions? Answer - Corporations
cannot deduct accruals until the related party reports the amount as income.
How must accrual basis taxpayers recognize gross income? Answer - Must
recognize gross income no later than when it is included in financial
statements.
How are capital gains taxed for corporations? Answer - Corporations do not
receive favorable tax rates on long-term capital gains. Capital gains are taxed at
the normal corporate tax rate.
Can corporations deduct net capital losses? Answer - Corporations cannot
deduct net capital losses against ordinary income. Capital losses can be carried
back 3 years and forward 5 years.
How is a long-term capital loss treated for corporations? Answer - Long-term
capital losses are treated as short-term capital losses.
What depreciation recapture rules apply to corporations? Answer - Both §
1245 & § 1250 recapture rules apply to corporations and individuals. § 1250
