Small Business Taxation. Course #5475G/QAS5475G Exam Packet

Small Business Taxation Course #5475G/QAS5475G Exam Packet

SMALL BUSINESS TAXATION (COURSE #5475G/QAS5475G) COURSE DESCRIPTION This course gives the practitioner a detailed look at tax issues that affect the most popular type of business in the United States the small business. The course begins by providing an overview of the many entity options available to small businesses today, from the traditional sole proprietorship to the C corporation. The course then provides detailed discussion on important issues such as filing and paying business taxes, accounting periods and methods, and general business tax credits. A detailed discussion is provided on the types of expenses that can be deducted by a business, as well as an important chapter on maintaining business records. This course is essential for any practitioner advising small business clients, whether they are a sole proprietor, a partnership, limited liability company, or a corporation. Uses the materials entitled Small Business Taxation. No prerequisites. Course level: Basic. Course #5475G/QAS5475G - 16 CPE hours. NOTE: The IRS has announced an increase to the optional standard mileage rates for the period July 1 to December 31, 2011. The rate will increase from 51 cents to 55.5 cents a mile for all business miles driven from July 1, 2011 through December 31, 2011. Also, the rate for computing deductible medical or moving expenses increased from 19 cents to 23.5 cents a mile for the same time period. The mileage rate for providing services for charitable organizations remains at 14 cents a mile. Any exam questions related to the 2011 standard mileage rates are based on the rates originally established by the IRS and that were in place for the first six months of 2011. LEARNING ASSIGNMENTS and OBJECTIVES As a result of studying each assignment, you should be able to meet the objectives listed below each individual assignment. ASSIGNMENT 1 Choice of Entity Study the course materials for chapter 1 Answer the final exam questions 1 to 6 To describe the major attributes of a sole proprietorship, partnership and corporation To explain the important differences between various business entities ASSIGNMENT 2 Filing and Paying Business Taxes Study the course materials for chapter 2 Answer the final exam questions 7 to 16 To list the types of tax returns various types of business entities are required to file To discuss income tax implications of disregarded entities Exam Page -1

ASSIGNMENT 3 Federal Employment Taxes Study the course materials for chapter 3 Answer the final exam questions 17 to 27 To identify the mandatory employment tax filings To explain the tests used to determine if a worker is an employee or an independent contractor ASSIGNMENT 4 Accounting Period and Methods Study the course materials for chapter 4 Answer the final exam questions 28 to 32 To define the options available for a business in selecting an accounting method To discuss the federal uniform capitalization rules ASSIGNMENT 5 Dispositions of Business Property Study the course materials for chapter 5 Answer the final exam questions 33 to 42 To list various types of business dispositions To discuss the detailed requirements of like-kind exchanges Exam Page -2

ASSIGNMENT 6 General Business Credit Study the course materials for chapter 6 Answer the final exam questions 43 to 46 To describe various common business tax credits To explain the process for claiming business tax credits ASSIGNMENT 7 Business Income Study the course materials for chapter 7 Answer the final exam questions 47 to 55 To define what constitutes business income To list items that are not considered business income ASSIGNMENT 8 How to Figure Cost of Goods Sold Figuring Gross Profit Study the course materials for chapters 8 and 9 Answer the final exam questions 56 to 59 To describe the process of calculating the cost of goods sold To explain methods for calculating gross profits Exam Page -3

ASSIGNMENT 9 Business Expense Study the course materials for chapter 10 Answer the final exam questions 60 to 77 To summarize the rules for determining whether an expense can be deducted as a business expense To list common types of expenses that are not deductible ASSIGNMENT 10 Figuring Net Profit or Loss Maintaining Business Records Study the course materials for chapters 11 and 12 Complete the review questions at the end of each chapter Answer the final exam questions 78 to 80 To describe the manner for figuring net profit or loss To discuss the importance of maintaining good business records ASSIGNMENT 11 Complete the Answer Sheet and Course Evaluation and mail to PES for credit NOTICE This course and test have been adapted from materials and information contained in the materials entitled Small Business Taxation and any supplemental material provided. This course is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice and assumes no liability whatsoever in connection with its use. Since laws are constantly changing, and are subject to differing interpretations, we urge you to do additional research and consult appropriate experts before relying on the information contained in this course to render professional advice. Professional Education Services, LP 2011 Program publication date 6/28/11 Exam Page -4

SMALL BUSINESS TAXATION (COURSE #5475G/QAS5475G) EXAM OUTLINE COURSE EXPIRATION DATE: Per AICPA and NASBA standards, this course must be completed within one year from the date of purchase. TEST FORMAT: The following final exam, consisting of 80 true/false and/or multiple choice questions, is based specifically on the material included in this course. The answer sheet must be completed and returned to PES for CPE certification. You will find the answer sheet at the back of this exam packet so that you may easily remove it and use it while taking your test. LICENSE RENEWAL INFORMATION: The Small Business Taxation course (#5475G/QAS5475G) qualifies for 16 CPE hours. PROCESSING: Your exam will be graded promptly. You must score 70% or better to pass. When you pass, your certificate of completion will be mailed. If you do not pass, we will give you a courtesy call to inform you of this and then another answer sheet will be sent to you free of charge. GRADING OPTIONS: Please choose only one of the following. There is no additional charge for any of these grading options. Make sure to fill out your answer sheet completely prior to submitting it. ONLINE GRADING Visit our website at http://www.mypescpe.com. Login to your account (if you are a first-time user you must set up a new user account). Go to the MY CPE tab and click the My CPE Exams in Progress folder. If your exam is not already located in this folder, click Add Exam Previously Purchased and follow the instructions. MAIL Your exam will be graded and your certificate of completion mailed to you the same day we receive it. Your certificate will be dated according to the postmark date; therefore, you do not need to overnight your exam. Please mail your answer sheet to: Professional Education Services, LP 4208 Douglas Blvd., Ste 50 Granite Bay, CA 95746 FAX Your exam will be graded and you will be contacted either via phone or fax with your results within 4 business hours of receipt. A copy of your graded exam and certificate of completion will be mailed to you the same day we receive it. Your certificate will be dated according to the fax date. If you choose to fax your exam, please do not mail it. Your fax will serve as the original. Please refer to the attached answer sheet for further instructions on fax grading. Fax number (916) 791-4099. Thank you for using Professional Education Services. We appreciate your business!! Exam Page -5

SMALL BUSINESS TAXATION (COURSE #5475G/QAS5475G) FINAL EXAM The following questions are either true or false and/or multiple choice. Please indicate your choice on the enclosed Answer Sheet. 1. The simplest form of business organization to start and maintain is a: a) corporation b) limited liability company c) sole proprietorship d) partnership 2. Which of the following statements best describes the role of the limited partners in a limited partnership: a) they are generally responsible for the dayto-day operations of the partnership b) they are normally passive investors c) they contribute most of the capital to the partnership d) they do not have a right to inspect the partnership s records without the consent of the general partners 3. Which of the following is not one of the major attributes of a corporation: a) its life span is limited to the natural life of its organizers b) it is a legal entity separate and apart from its owners c) it may only appear in court through a licensed attorney d) its management and control is vested in the board of directors, elected by the shareholders of the corporation 4. For purposes of federal income taxation, S corporations are treated as: 5. Which of the following are attributes of a limited liability company: a) members normally have no personal liability for debts and obligations of the company b) most states allow single-member companies c) state law requires few formalities 6. A domestic limited liability company with at least two members is automatically classified as what for federal income tax purposes: a) a partnership b) an S Corporation c) a corporation d) a sole proprietorship 7. The self-employment tax rate for 2011 is: a) 2.9 percent b) 10.4 percent c) 13.3 percent d) 20.8 percent 8. Most limited liability companies (LLCs) with more than one member file what type of federal tax return: a) a partnership return b) a corporate return c) an S corporation return d) they are not required to file any tax return a) sole proprietorships b) partnerships c) corporations d) either a or c above Exam Page -6

9. Which of the following statements about the applicability of self-employment tax to the members of a limited liability company is most correct: a) members are never required to pay selfemployment tax, regardless of their role in the company b) most limited liability company members are required to pay self-employment tax directly to the IRS c) only limited liability companies with fewer than ten members are subject to selfemployment tax 10. A partnership has the right to elect the way it wishes to be treated for federal tax purposes in which of the following areas: a) accounting method b) depreciation method c) amortization of certain organization fees 11. In a partnership, amortization applies to which of the following expenses: a) those that are incident to the creation of the partnership b) those that are chargeable to a capital account c) those that would be amortized if they were incurred in the creation of a partnership having a fixed life 12. The classic knock on corporations is: a) they are often disliked by the American public b) they are subject to double taxation c) they are expensive to organize d) their shareholders often lose their money 13. A corporation that has a capital loss that exceeds its capital gains: a) must carry the loss that exceeds its gains to other tax years b) may deduct the full loss in the current tax year c) must deduct the full loss in the current tax year d) may neither deduct the loss in the current year nor carry it forward to another year 14. A corporation cannot deduct charitable contributions that exceed what percentage of its taxable income for the year: a) 5 percent b) 10 percent c) 20 percent d) 35 percent 15. Business start-up costs include which of the following: a) an analysis of potential markets, products and labor supplies b) advertisements for the opening of the business c) salaries and wages for employees who are being trained 16. When making a choice of entity that includes S corporation status, factors to consider include that the S corporation: a) is treated as a partnership for income tax purposes b) ownership is unlimited c) is treated as a corporation for determining the tax treatment on dissolution d) both a and c above 17. Which of the following federal agencies is responsible for collecting employment taxes: a) the Department of Labor b) the Internal Revenue Service c) the U.S. Treasury d) the Department of Commerce Exam Page -7

18. Employers who erroneously classify a worker as an independent contractor rather than an employee and fail to withhold federal payroll taxes are liable for: a) the employee s share of FICA tax b) the employee s income tax withholding c) both a and b above 19. Which of the following statements about the taxation of employee tips is correct: a) tips received by employees are never subject to tax b) tips of less than $100 in a month are not subject to tax c) tips are considered wages for purposes of employment taxes d) tips are only considered wages for purposes of employment taxes in industries in which tipping is customary 20. Which of the following statements about the IRS 20-factor test is not true: a) it provides businesses that follow the test a guarantee that their workers will be classified as independent contractors b) the IRS does not give specific weight to any of the 20 factors c) the precise nature of the relationship between a business and a worker is very individualized d) a business that wants to utilize independent contractors in lieu of employees should attempt to have as many aspects of its relationships comply with the IRS test as possible 21. Which of the following statements generally applies to an independent contractor rather than an employee: a) the worker is given a set sequence in which to perform certain work b) the worker is free to work for other businesses or individuals whenever he wants c) the worker does not control the hours he works d) the worker is provided with all necessary tools and equipment 22. The fact that a worker has signed a written contract indicating that he or she is an independent contractor: a) is conclusive proof that the worker is an independent contractor and not an employee b) is the most important factor in determining the status of a worker c) is evidence of a worker s status but not conclusive 23. Facts that illustrate whether there is a right to direct or control how the business aspects of the worker s activities are conducted include: a) significant investment b) unreimbursed expenses c) the opportunity for profit or loss 24. An officer of a corporation is not considered to be an employee if: a) the officer does not perform any services or performs only minor services b) the officer is not entitled to receive, directly or indirectly, any remuneration c) both a and b above d) either a or b above 25. Which of the following is not one of the requirements for a homeworker to be considered a statutory employee: a) the products produced must be for general household use b) he must do the work in accordance with specifications given by the employer c) the material or goods on which the work is done must be furnished by the employer d) the finished products must be returned to the employer or a person designated by them 26. Which of the following types of workers does not fall into a category of statutory nonemployees: a) qualified real estate agents b) taxi cab drivers c) direct sellers d) newspaper carriers Exam Page -8

27. A business must generally withhold income taxes from which of the following workers: a) common law employees b) agent or commission drivers c) qualified real estate agents d) companion sitters 28. A taxpayer must adopt the calendar tax year if which of the following apply: a) he keeps no books b) he has no annual accounting period c) his present tax year does not qualify as a fiscal year 29. Most individuals and sole proprietors with no inventory use what method of accounting: a) cash method b) accrual method c) special method d) combination method 30. Under the accrual method, taxpayers generally include an amount in their gross income for the tax year in which: a) all the events that fix their right to receive the income have occurred b) they can determine the amount with reasonable accuracy c) the amount is more than the fair market value of the goods or services sold d) both a and b above 31. Taxpayers generally cannot deduct or capitalize a business expense until: a) the end of their fiscal year b) the beginning of the following quarter c) economic performance occurs d) their CPA says they can 32. If a business is required to account for inventories, it should include which of the following items when accounting for its inventory: a) merchandise or stock in trade b) raw materials c) finished products 33. A disposition of property includes which of the following transactions: a) selling property for cash b) transferring property to satisfy a debt c) abandoning property 34. Like-kind properties are: a) properties with the same relative worth b) properties of the same nature or character c) properties that have the same quality 35. A business has how long to identify property for a like-kind exchange: a) 45 days b) 60 days c) 90 days d) 120 days 36. Which of the following may not be included in an exchange group: a) interests in a partnership b) money c) interests in a cause of action 37. The basis of property purchased is generally: a) its cost b) its fair market value at the time of purchase c) the higher of a or b d) the lower of a or b 38. When sold, an interest in a partnership or joint venture is treated as a(n): a) ordinary asset b) capital asset c) like-kind exchange d) depreciable asset 39. A property s basis is used to calculate which of the following: a) depreciation b) amortization c) depletion Exam Page -9

40. Which of the following is not an example of an intangible asset: a) goodwill b) real estate c) patents d) trade names 41. Which of the following items increase the basis of property: a) the cost of extending utility service lines to the property b) impact fees c) zoning costs 42. To be considered a long-term gain or loss, an entity must hold an asset prior to disposition for longer than: a) six months b) one year c) three years d) five years 43. A tax credit is available for alcohol used to produce: a) fuel b) methanol only c) ethanol only 44. The employer-provided childcare facilities tax credit is equal to what percentage of qualified expenses for employee childcare (subject to an annual limit): a) 25 percent b) 35 percent c) 50 percent d) 75 percent 45. The empowerment zone employment credit is equal to: a) 10 percent of the qualified zone wages paid or incurred during a calendar year b) 20 percent of the qualified zone wages paid or incurred during a calendar year c) 35 percent of the qualified zone wages paid or incurred during a calendar year d) 100 percent of the qualified zone wages paid or incurred during a calendar year 46. Section 179 of the Internal Revenue Code allows a taxpayer to choose to deduct all or part of the cost of certain qualifying property: a) the year after it is placed in service b) the year it is placed in service c) three years after it is placed in service 47. Royalties, such as those received from patents or oil rights, are usually taxed as: a) ordinary income b) capital income c) passive income d) either a or c above 48. An exchange of property or services for other property or services is referred to as: a) liquidation b) transference c) bartering d) a good idea 49. A barter exchange must withhold income taxes under which of the following circumstances: a) when the individual does not give the barter exchange his taxpayer identification number b) the IRS notifies the barter exchange that the individual gave it an incorrect identification number c) the exchange involves goods with a value in excess of $10,000 d) both a and b above Exam Page -10

50. Dividends are generally considered business income when paid to: a) sole proprietors b) dealers in securities c) statutory employees 51. Damages awarded by a court for which of the following types of injuries must be included as gross income: a) patent infringement b) breach of contract c) antitrust injury 52. Which of the following statements about the tax treatment of kickbacks is correct: a) they are never required to be reported as income b) they must be reported as gross income only when they exceed $10,000 in value during the tax year c) they must be reported as income unless the recipient treats them as a reduction of a related expense item d) they must be reported only if they violate state or federal law 53. Which of the following items are not normally considered to be income: a) money borrowed through a bona fide loan b) state and local sales tax that the seller is required to collect and remit c) increases in the value of property still held by the owner 54. A consignment of merchandise is not considered a sale until: a) the merchandise is transferred to the seller b) the merchandise is made available for sale c) the merchandise is actually sold 55. Reductions from a list or catalog price that are not written into the invoice or charged to the customer are called: a) trade discounts b) cash discounts c) write-offs d) consignments 56. If a business is a merchant, beginning inventory is: a) the fair market value of the merchandise on hand the first day of the tax year b) the cost of merchandise on hand at the beginning of the tax year that the merchant will sell to customers c) the appraised value of the merchandise on hand at the close of the tax year d) either a or c above 57. In calculating the cost of goods sold, direct labor costs are: a) those a business expends in recruiting its employees b) those a business expends in training new employees c) the wages a business pays to those employees who spend all their time working directly on the product being manufactured 58. In calculating the cost of goods sold, materials and supplies used in manufacturing goods are charged to: a) other costs b) the cost of goods sold c) labor costs d) amortized costs 59. To compute gross profit, a sole proprietor must first determine: a) net receipts b) amortizable costs c) allowable business expenses d) income tax liability Exam Page -11

60. A business expense is considered ordinary if it is: a) helpful for a particular business b) recommended for a particular business c) common and accepted in a particular field of business d) suggested by the entity s owners 61. For purposes of the uniform capitalization rules, indirect costs include which of the following: a) rent b) taxes c) storage 62. Under what circumstances can a business deduct personal, living or family expenses: a) whenever it wants, if it has a good accountant b) when such expenses are used partially for business and partially for personal use, but only to the extent the use was for business c) when such expenses are used partially for business and partially for personal use d) when the personal expenses were charged on a business credit card 63. Which of the following factors are used to determine if an activity is being carried on for profit: a) whether the activity is being carried on in a business-like manner b) whether the time and effort put into it indicates that the individual is trying to make a profit c) whether the individual depends on income from the activity for his livelihood 64. When can an individual using the cash method of accounting deduct business expenses: a) in the year they are actually paid b) in the year in which they are accrued c) in the year the service is performed or the goods are delivered 65. Local business transportation expenses do not include which of the following: a) visiting clients or customers b) going to a meeting away from a regular place of work c) traveling away from home overnight 66. To be deductible as a business expense, an employee s pay must be: a) reasonable b) approved by the entity s owner c) for services actually performed d) both a and c above 67. The limit to an employer s deduction for the cost per employee of all employee achievement awards during a year, whether or not they are qualified plan awards is: a) $400 b) $1,600 c) $2,000 d) $10,000 68. Employers cannot deduct the cost of groupterm life insurance coverage: a) under any circumstances b) if they are directly or indirectly the beneficiary of the policy c) if they employ fewer than 50 employees d) if the plan is not an ERISA plan 69. Insurance premiums paid by a business for which of the following types of insurance are deductible: a) fire or theft b) general liability c) business interruption insurance 70. Which of the following expenses is not deductible as a business expense: a) the cost of advertising its business activities b) the cost of utilities including heat, lights and power c) reserves created to cover anticipated liabilities d) institutional or goodwill advertising Exam Page -12

71. In most cases, what percentage of entertainment expenses are deductible by a business or individual: a) 10 percent b) 25 percent c) 50 percent d) 100 percent 72. An individual s home office qualifies as his principal place of business for purposes of determining their eligibility for a business-useof-the-home deduction if: a) he uses the office exclusively and regularly for administrative or management activities of his trade or business b) the home office is the most convenient place for the individual to work c) he has no other fixed location where he conducts substantial administrative or management activities of his trade or business d) both a and c above 73. Membership dues paid to which of the following types of organizations are typically not deductible: a) trade associations b) country clubs c) chambers of commerce d) business leagues 74. Which of the following types of depreciable property qualify for the 179 deduction: a) tangible personal property b) single purpose agricultural structures c) off-the-shelf computer software d) any of the above 75. In order to deduct the cost of an individual s own educational expenses as a business expense, the individual must be able to show: a) that the education will improve his income in the future b) that the education was required to maintain or improve skills in his trade or business or by law c) that the education was in the best interest of the individual d) that the cost of the education was less than $5,000 per year 76. Which of the following statements about the deductibility of lobbying expenses is correct: a) they are not a deductible business expense b) they can be deducted to the extent they do not exceed $10,000 in a single year c) they are deductible if the lobbying relates directly to the entity s type of business d) they are deductible if the lobbying was conducted on the local rather than the state or federal level 77. Examples of penalties and fines which are not deductible as business expenses include which of the following: a) fines for violating city housing codes b) fines for violating air quality laws c) fines paid by truckers for violating state maximum-weight laws 78. Which of the following types of documents is not a good record for proving a business s expenses: a) canceled checks b) daily sales totals c) invoices d) account statements 79. If a business has employees, it must maintain employment tax records for at least after the date the tax becomes due or is paid, whichever is later: a) one year b) two years c) four years d) 10 years 80. For a business gift to be deductible as a business expense, the gift must be: a) ordinary and necessary b) less than $75 c) incurred for a current customer Congratulations you ve completed the exam! Exam Page -13

SMALL BUSINESS TAXATION #5475G/QAS5475G (16 CPE hours) ANSWER SHEET (6/11) Important Note: For certification, this answer sheet must be completed and submitted to PES for grading within one year from the date of purchase. Please use black ink and print for quicker processing thank you. Name (as it appears on your license) Address City State Zip Home Work Daytime Phone ( ) E-mail address (for online grading) License Number State Expiration Date CPA, CFP, EA (circle one) If course was ordered by another party, please indicate name here: GRADING OPTIONS Please choose only ONE of the following: ONLINE GRADING Visit our website at http://www.mypescpe.com. o Login to your account (if you are a first-time user, you must set up a new user account). o Go to the MY CPE tab and click the My CPE Exams in Progress folder. o If your exam is not already located in this folder, click Add Exam Previously Purchased and follow the instructions. Mail Mail your exam to: PES, 4208 Douglas Blvd., Ste 50, Granite Bay, CA 95746 Fax Fax your exam to (916) 791-4099 and choose one of the following options: Please: mail my results only or fax phone my results to: ( ) PLEASE INDICATE YOUR ANSWER BY FILLING IN THE APPROPRIATE CIRCLE A B C D A B C D A B C D A B C D 1. O O O O 21. O O O O 41. O O O O 61. O O O O 2. O O O O 22. O O O O 42. O O O O 62. O O O O 3. O O O O 23. O O O O 43. O O O O 63. O O O O 4. O O O O 24. O O O O 44. O O O O 64. O O O O 5. O O O O 25. O O O O 45. O O O O 65. O O O O 6. O O O O 26. O O O O 46. O O O O 66. O O O O 7. O O O O 27. O O O O 47. O O O O 67. O O O O 8. O O O O 28. O O O O 48. O O O O 68. O O O O 9. O O O O 29. O O O O 49. O O O O 69. O O O O 10. O O O O 30. O O O O 50. O O O O 70. O O O O 11. O O O O 31. O O O O 51. O O O O 71. O O O O 12. O O O O 32. O O O O 52. O O O O 72. O O O O 13. O O O O 33. O O O O 53. O O O O 73. O O O O 14. O O O O 34. O O O O 54. O O O O 74. O O O O 15. O O O O 35. O O O O 55. O O O O 75. O O O O 16. O O O O 36. O O O O 56. O O O O 76. O O O O 17. O O O O 37. O O O O 57. O O O O 77. O O O O 18. O O O O 38. O O O O 58. O O O O 78. O O O O 19. O O O O 39. O O O O 59. O O O O 79. O O O O 20. O O O O 40. O O O O 60. O O O O 80. O O O O Please complete the attached course evaluation your opinion is extremely valuable. Exam Page -14

Small Business Taxation #5475G/QAS5475G - Course Evaluation Rate on a scale of 1-10 with 1 being poor and 10 being excellent. 1. The course met the course objectives described in the promotional material. 2. The course was up to date, held my interest, was timely, and effective. 3. The course materials were understandable, valuable, and suitable for a correspondence course. 4. The amount of advance knowledge and stated prerequisites were appropriate. 5. The completion time was appropriate for the number of credits allowed. 6. The course met my professional education needs. Please answer the following questions mark/rate any and all that may apply 1. How would you rate PES s order desk customer service 2. What can PES do to keep you as a valued customer? 3. Any other comments regarding this course or our company would be appreciated. 4. What other courses/subjects would you like to see PES offer in the future? Mail to: Professional Education Services, LP 4208 Douglas Blvd., Ste 50, Granite Bay, CA 95746 Exam Page -15