Tax Accounting Business Guide Quiz

1. Which of the following are limitations on business deductions - expenses against public policy?

C- rent for office space

B- legitimate advertising expenses

-fines, penalties, illegal bribes, illegal kickbacks, any payment for illegal services or goods

D- fees paid for professional services

A- employee salaries and benefits

The correct answer lists specific expenses that are not deductible due to being against public policy, such as fines, penalties, illegal bribes, illegal kickbacks, and payments for illegal services or goods. Employee salaries, legitimate advertising expenses, rent for office space, and fees for professional services are typically deductible business expenses.

Explanation

The correct answer lists specific expenses that are not deductible due to being against public policy, such as fines, penalties, illegal bribes, illegal kickbacks, and payments for illegal services or goods. Employee salaries, legitimate advertising expenses, rent for office space, and fees for professional services are typically deductible business expenses.

2. Are political contributions and most lobbying costs deductible?

Are

Are not

Depend on the amount

Only for certain individuals

Political contributions and most lobbying costs are not deductible as per the tax laws.

Explanation

Political contributions and most lobbying costs are not deductible as per the tax laws.

3. Expenses relating to tax-exempt income: Interest expenses on loan where proceeds invested in municipal bonds (are, are not) deductible. Life Ins. premiums paid for officers or other key employees that compensate business due to a key employee's death (are, are not) deductible.

Are not are not

Are are

Are notare not

Are not are

Expenses relating to tax-exempt income are generally not deductible in order to prevent double-dipping tax benefits.

Explanation

Expenses relating to tax-exempt income are generally not deductible in order to prevent double-dipping tax benefits.

4. What rule should be used for capital expenditures deduction?

12 month rule- deduct if benefit less or equal to 12 months and benefits do not extend beyond end of next tax year

36 month rule- deduct if benefit less or equal to 36 months and benefits do not extend beyond end of next tax year.

6 month rule- deduct if benefit less or equal to 6 months and benefits do not extend beyond end of next tax year.

24 month rule- deduct if benefit less or equal to 24 months and benefits do not extend beyond end of next tax year.

The correct answer is the 12 month rule, where deductions are allowed if the benefits derived from the expenditure are less or equal to 12 months and do not extend beyond the end of the next tax year.

Explanation

The correct answer is the 12 month rule, where deductions are allowed if the benefits derived from the expenditure are less or equal to 12 months and do not extend beyond the end of the next tax year.

5. The 12 month rule for prepaid capital expenditures does not apply to which of the following?

Building expansion costs

Purchase of new machinery

Salary expenses

Rent or interest.

The 12 month rule for prepaid capital expenditures refers to the IRS rules that allow businesses to deduct certain prepaid expenses over the course of their useful life, with the exception of rent or interest payments which are subject to different treatment.

Explanation

The 12 month rule for prepaid capital expenditures refers to the IRS rules that allow businesses to deduct certain prepaid expenses over the course of their useful life, with the exception of rent or interest payments which are subject to different treatment.

6. Ben makes the following payments on June 30 of this year: pays $10,000 for the next 10 months of utilities, pays $12,000 for insurance over the next 24 months, pays $9,600 for the next 8 months of rent.

Deduct $4,800 for rent for the next 8 months

Deduct $8,000 for utilities as they span over the next 10 months

Deduct $6,000 for insurance as it is spread over the next 24 months

-deduct all $10,000 because benefit less than 12 months and ends prior to end of next year-deduct $3000($500/mo X 6 months)-Deduct $7,200($1,200/mo X 6 months)-12 month rule does not apply to rent or interest

The correct approach is to consider the number of months each payment covers and apply the appropriate rules for deductions based on the time period.

Explanation

The correct approach is to consider the number of months each payment covers and apply the appropriate rules for deductions based on the time period.

7. What percentage of meals and entertainment from business interactions is deductible as long as certain criteria are met?

50%1-amt is reasonable2-taxpayer or employee must be present for meal3-meal must be associated with conduction of business

75% of the amount is deductible if the meal is taken at a high-end restaurant.

100% of the amount can be deducted if a business deal is successfully closed during the meal.

25% of the amount can be deducted regardless of other criteria being met.

To deduct meals and entertainment expenses from business interactions, 50% of the amount spent is typically deductible if the taxpayer or employee is present for the meal and the meal is directly connected to the conduct of active trade or business.

Explanation

To deduct meals and entertainment expenses from business interactions, 50% of the amount spent is typically deductible if the taxpayer or employee is present for the meal and the meal is directly connected to the conduct of active trade or business.

8. Travel and transport deduction: Deduct cost of travel and transportation for business purposes. If travel is business and personal, only business days are deductible. If more than 50% of the trip is business then___% of all transportation is deductible. If less than 50% __% is deductible. SMR: Jan 1.-June 30- $0.51/mile July 1-Dec. 31- $0.555/mile.

80%, 20%

100%, 0%

60%, 40%

75%, 25%

The correct answer is 100% for transportation deductible if more than 50% of the trip is for business purposes. If less than 50%, then 0% is deductible.

Explanation

The correct answer is 100% for transportation deductible if more than 50% of the trip is for business purposes. If less than 50%, then 0% is deductible.

9. Ben paid the following to attend a business meeting in Chicago: Airfare- $1,200, Hotel (3 nights)- $750, Meals (3 days)- $270. What amounts are deductible if Ben spent two days in meetings? What amounts are deductible if Ben spent one day in a meeting?

1) $1200+$500+$90=$1790 (all or none, 250/day, 90/day X 50%)2) $0+$250+$45=$295 (all or none, 250/day, 90/day X 50%)

$0 + $750 + $90 = $840

$1,200 + $750 + $135 = $2,085

$1,200 + $750 + $270 = $2,220

The deductible amounts include airfare, a fixed rate for hotel per day of attendance, and a fixed rate for meals per day of attendance. If the meeting days are less than the total days spent on the trip, only a percentage of hotel and meal expenses are deductible.

Explanation

The deductible amounts include airfare, a fixed rate for hotel per day of attendance, and a fixed rate for meals per day of attendance. If the meeting days are less than the total days spent on the trip, only a percentage of hotel and meal expenses are deductible.

10. Property Use- some assets may be used for both business and personal purposes(car, phone, computer). Expenses are allocated based on:

Personal preference.

Random selection.

...business use %.

The highest cost incurred.

Expenses for assets used for both business and personal purposes are allocated based on the business use percentage to accurately reflect the portion of expenses related to business activities.

Explanation

Expenses for assets used for both business and personal purposes are allocated based on the business use percentage to accurately reflect the portion of expenses related to business activities.

11. How are start-up expenditures typically treated on the balance sheet?

Fully expensed in the following year

Deferred indefinitely

Amortized over several years

Capitalized and immediately expensed

Start-up expenditures are typically capitalized and immediately expensed, allowing for the costs to be spread out over time rather than impacting the business all at once.

Explanation

Start-up expenditures are typically capitalized and immediately expensed, allowing for the costs to be spread out over time rather than impacting the business all at once.

12. Businesses are allowed to deduct bad debt expense when it is only deductible for __ method taxpayers.

..the debt becomes worthless or uncollectible.-accrual

The debt is incurred- cash

The customer requests a payment extension -cash

The debt is initially recognized -accrual

Bad debt expenses are only deductible for accrual method taxpayers when the debt becomes worthless or uncollectible. Other scenarios mentioned in incorrect answers do not meet the criteria for deducting bad debt expenses.

Explanation

Bad debt expenses are only deductible for accrual method taxpayers when the debt becomes worthless or uncollectible. Other scenarios mentioned in incorrect answers do not meet the criteria for deducting bad debt expenses.