Intro to Federal Tax Exam 2 Exam
Questions & Answers (Grade A+)
Gross income -
correct answer ✅gross income consist primarily of revenues from
the sale of goods or performance of services in the regular course
of commercial activity.
(T or F) The Internal Revenue Code allows a deduction for all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business. -
correct answer ✅True
What is a ordinary Expense -
correct answer ✅if it is customary for a particular type of trade or
business and is commonly or frequently incurred.
What is a necessary expense -
correct answer ✅if it is appropriate and helpful for the
development of the business and the generation of revenue
Calendar year -
correct answer ✅If a firm keeps its financial books on records on a
calendar year, it measures taxable income over the same January
through December period
,Intro to Federal Tax Exam 2 Exam
Questions & Answers (Grade A+)
Fiscal Year -
correct answer ✅If a firm keeps its financial records on a fiscal
year, (any 12-month period ending on the last day of any month
except December), it uses this fiscal year as its taxable year.
Why would a firm consider keeping their books on a fiscal or
calendar year -
correct answer ✅Firms want to close their books and calculate
their profit at the end of a natural cycle of business activity.
A new business entity establishes its taxable year by filing an initial
tax return on the basis of such year (t or f) -
correct answer ✅True
Can a firm change its reporting year? -
correct answer ✅No, unless it formally request and receives
permission to do so from the IRS
What does a firm file if they are allowed to change their tax year? -
correct answer ✅A short period return
,Intro to Federal Tax Exam 2 Exam
Questions & Answers (Grade A+)
Business interest limitation -
correct answer ✅Business interest in excess of 30% of adjusted
taxable income is not currently deductible.
Cash method accounting -
correct answer ✅an overall method of accounting under which
revenue is accounted for when payment is received and expenses
are accounted for when a payment is made
Taxable income -
correct answer ✅gross income - allowable deductions
Are receipts taxable? -
correct answer ✅Receipts are taxable unless a specific rule states
that the receipt is nontaxable
Are all expenses deductible? -
correct answer ✅No, Expenses are deductible only if a specific rule
states that the expense is deductible..
What is a taxable year? -
correct answer ✅Generally its a 12-month calendar year
, Intro to Federal Tax Exam 2 Exam
Questions & Answers (Grade A+)
When should we all file our taxes by? -
correct answer ✅April 15th
Can corporations decide when their fiscal year starts? -
correct answer ✅Yes, they can start their fiscal year.
The internal revenue code permits firms to use the following
accounting methods -
correct answer ✅Cash
accrual
combined (hybrid)
Are deductions affected by public policy? -
correct answer ✅Yes, heavily
Can you deduct fines or penalties, political contributions, or
lobbying expenses from your taxable income? -
correct answer ✅No, we don't want to reward companies for
fines.
Questions & Answers (Grade A+)
Gross income -
correct answer ✅gross income consist primarily of revenues from
the sale of goods or performance of services in the regular course
of commercial activity.
(T or F) The Internal Revenue Code allows a deduction for all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business. -
correct answer ✅True
What is a ordinary Expense -
correct answer ✅if it is customary for a particular type of trade or
business and is commonly or frequently incurred.
What is a necessary expense -
correct answer ✅if it is appropriate and helpful for the
development of the business and the generation of revenue
Calendar year -
correct answer ✅If a firm keeps its financial books on records on a
calendar year, it measures taxable income over the same January
through December period
,Intro to Federal Tax Exam 2 Exam
Questions & Answers (Grade A+)
Fiscal Year -
correct answer ✅If a firm keeps its financial records on a fiscal
year, (any 12-month period ending on the last day of any month
except December), it uses this fiscal year as its taxable year.
Why would a firm consider keeping their books on a fiscal or
calendar year -
correct answer ✅Firms want to close their books and calculate
their profit at the end of a natural cycle of business activity.
A new business entity establishes its taxable year by filing an initial
tax return on the basis of such year (t or f) -
correct answer ✅True
Can a firm change its reporting year? -
correct answer ✅No, unless it formally request and receives
permission to do so from the IRS
What does a firm file if they are allowed to change their tax year? -
correct answer ✅A short period return
,Intro to Federal Tax Exam 2 Exam
Questions & Answers (Grade A+)
Business interest limitation -
correct answer ✅Business interest in excess of 30% of adjusted
taxable income is not currently deductible.
Cash method accounting -
correct answer ✅an overall method of accounting under which
revenue is accounted for when payment is received and expenses
are accounted for when a payment is made
Taxable income -
correct answer ✅gross income - allowable deductions
Are receipts taxable? -
correct answer ✅Receipts are taxable unless a specific rule states
that the receipt is nontaxable
Are all expenses deductible? -
correct answer ✅No, Expenses are deductible only if a specific rule
states that the expense is deductible..
What is a taxable year? -
correct answer ✅Generally its a 12-month calendar year
, Intro to Federal Tax Exam 2 Exam
Questions & Answers (Grade A+)
When should we all file our taxes by? -
correct answer ✅April 15th
Can corporations decide when their fiscal year starts? -
correct answer ✅Yes, they can start their fiscal year.
The internal revenue code permits firms to use the following
accounting methods -
correct answer ✅Cash
accrual
combined (hybrid)
Are deductions affected by public policy? -
correct answer ✅Yes, heavily
Can you deduct fines or penalties, political contributions, or
lobbying expenses from your taxable income? -
correct answer ✅No, we don't want to reward companies for
fines.
