Tax 503 Questions and Answers (80 Questions)
Match the business entity with the tax form used to report taxable income.
Schedule C
Form 1065
Form 1120S
Form 1120 ** Answ** Sole Proprietorship
Partnership
S Corporation
C Corporation
Which of the following choices is INCORRECT when defining the gross income of a
business? ** Answ** Gross income for a business may be calculated as sales less
returns and discounts.
All ____ and _____ expenses that are reasonable in amount and incurred in carrying on
a trade or business are deductible for tax purposes. ** Answ** ordinary, necessary
The term ___ is used to describe an expense that is normal or appropriate for the
business under the circumstances. ** Answ** ordinary
Ordinary and necessary business expenses are deductible only to the extent they are
____ in amount. ** Answ** reasonable
Match the entity with the statement that describes the tax treatment of that entity.
Sole proprietorship
Partnership
C corporation ** Answ** a.) Revenues and expenses are reported directly on the
owner's tax return, and the profit (or loss) is subject to both individual income and self
employment taxes
b.) Entity reports income on tax forms separate tax (information) forms, but the profit or
loss flows through to owners' individual income tax returns
c.) Income is taxed at the entity level rather than flow through to the owners
Allison purchased equipment that cost $100,000 for use in her business. She expects
the equipment to be useful for the business for the next 8 years. Which of the following
choices correctly describes the tax treatment of the cost of the equipment? ** Answ**
The equipment should be capitalized and depreciated according to the tax code.
Which of the following choices constitutes gross income from a business? (Check all
that apply.) ** Answ** - Income from renting property
- Gross profit from inventory sales
- Income from services provided
For assistance with assignments contact
, Sonny incurred the following expenses last month in his self-employment business:
Khaki pants and a blue button-down shirt to wear to work; tuition for a course in
marketing to improve his current job skills as a fashion designer; and groceries so that
he could take his lunch to work. Which of these expenses is/are deductible business
expenses? ** Answ** tuition for the marketing course
Which one of the following terms does the Internal Revenue Code use to describe
deductible business expenses? ** Answ** Ordinary
Due to the personal enjoyment element involved with meals, taxpayers may only deduct
_____% of the actual cost. ** Answ** 50
Which of the following criteria is NOT required for a business expense to be considered
ordinary and necessary? ** Answ** Repetitive in nature
In addition to the all-events test, an accrual-basis business must meet a(n) _____
_____ test with respect to a liability before the corresponding expense can be deducted
for tax purposes. ** Answ** economic performance
When is a business expense deemed to be reasonable in amount? ** Answ** When
it is not extravagant
Which of the following choices is NOT correct regarding deductible transportation
expenses for a taxpayer using her personal vehicle for business purposes? ** Answ**
The taxpayer can deduct the business portion of the vehicle operating costs, plus
depreciation, plus a standard mileage rate based on business miles.
Which of the following business expenses are deductible for tax purposes? (Check all
that apply.) ** Answ** - Advertising cost for ads placed in the local newspaper
- Depreciation expense on a building used to store company vehicles
- Legal fees incurred to defend the business in a lawsuit
Evan incurred education-related expenditures related to his self-employment job. Under
which of the following circumstances will Evan NOT be allowed to deduct these
expenditures as a BUSINESS expense? ** Answ** The course or courses qualify
Evan for a new trade or business.
In order to deduct travel expenses (as opposed to transportation expenses), the
taxpayer must be away from home on a trip of sufficient duration to require sleep or
rest. ** Answ** True
Which of the following criteria is NOT required for a meal to be considered a tax-
deductible business meal? ** Answ** The meal must be eaten on the business
premises.
For assistance with assignments contact
Match the business entity with the tax form used to report taxable income.
Schedule C
Form 1065
Form 1120S
Form 1120 ** Answ** Sole Proprietorship
Partnership
S Corporation
C Corporation
Which of the following choices is INCORRECT when defining the gross income of a
business? ** Answ** Gross income for a business may be calculated as sales less
returns and discounts.
All ____ and _____ expenses that are reasonable in amount and incurred in carrying on
a trade or business are deductible for tax purposes. ** Answ** ordinary, necessary
The term ___ is used to describe an expense that is normal or appropriate for the
business under the circumstances. ** Answ** ordinary
Ordinary and necessary business expenses are deductible only to the extent they are
____ in amount. ** Answ** reasonable
Match the entity with the statement that describes the tax treatment of that entity.
Sole proprietorship
Partnership
C corporation ** Answ** a.) Revenues and expenses are reported directly on the
owner's tax return, and the profit (or loss) is subject to both individual income and self
employment taxes
b.) Entity reports income on tax forms separate tax (information) forms, but the profit or
loss flows through to owners' individual income tax returns
c.) Income is taxed at the entity level rather than flow through to the owners
Allison purchased equipment that cost $100,000 for use in her business. She expects
the equipment to be useful for the business for the next 8 years. Which of the following
choices correctly describes the tax treatment of the cost of the equipment? ** Answ**
The equipment should be capitalized and depreciated according to the tax code.
Which of the following choices constitutes gross income from a business? (Check all
that apply.) ** Answ** - Income from renting property
- Gross profit from inventory sales
- Income from services provided
For assistance with assignments contact
, Sonny incurred the following expenses last month in his self-employment business:
Khaki pants and a blue button-down shirt to wear to work; tuition for a course in
marketing to improve his current job skills as a fashion designer; and groceries so that
he could take his lunch to work. Which of these expenses is/are deductible business
expenses? ** Answ** tuition for the marketing course
Which one of the following terms does the Internal Revenue Code use to describe
deductible business expenses? ** Answ** Ordinary
Due to the personal enjoyment element involved with meals, taxpayers may only deduct
_____% of the actual cost. ** Answ** 50
Which of the following criteria is NOT required for a business expense to be considered
ordinary and necessary? ** Answ** Repetitive in nature
In addition to the all-events test, an accrual-basis business must meet a(n) _____
_____ test with respect to a liability before the corresponding expense can be deducted
for tax purposes. ** Answ** economic performance
When is a business expense deemed to be reasonable in amount? ** Answ** When
it is not extravagant
Which of the following choices is NOT correct regarding deductible transportation
expenses for a taxpayer using her personal vehicle for business purposes? ** Answ**
The taxpayer can deduct the business portion of the vehicle operating costs, plus
depreciation, plus a standard mileage rate based on business miles.
Which of the following business expenses are deductible for tax purposes? (Check all
that apply.) ** Answ** - Advertising cost for ads placed in the local newspaper
- Depreciation expense on a building used to store company vehicles
- Legal fees incurred to defend the business in a lawsuit
Evan incurred education-related expenditures related to his self-employment job. Under
which of the following circumstances will Evan NOT be allowed to deduct these
expenditures as a BUSINESS expense? ** Answ** The course or courses qualify
Evan for a new trade or business.
In order to deduct travel expenses (as opposed to transportation expenses), the
taxpayer must be away from home on a trip of sufficient duration to require sleep or
rest. ** Answ** True
Which of the following criteria is NOT required for a meal to be considered a tax-
deductible business meal? ** Answ** The meal must be eaten on the business
premises.
For assistance with assignments contact
