Introduction

Sole proprietor
1. For federal tax purposes, a limited liability company (LLC) owned individually is considered a sole proprietor unless an election is made to treat the LLC as a corporation.

A. True
B. False

Statutory employee

2. Statutory employees with a checkmark in box 13 of his or her Form W-2 Wage and Tax statement do not use Schedule C or C-EZ to report their wages and expenses.

A. True
B. False

Husband-wife business
3. If you or your spouse jointly own and operate a business and share in the profits and losses, you must have a formal partnership agreement to be considered a partnership and file using partnership Form 1065.

A. True
B. False

4.  If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U.S. possession, you can only treat the business as a partnership and not as a sole proprietorship.

A.  True

B.  False

What's New for 2007

Standard mileage rate

5.  The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2007 is 48.5 cents for all business miles.

A.  True

B.  False

Self-employment tax
6. The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax increased for 2007 to:

A. $89,500
B. $97,000
C. $95,000
D. $97,500

Increased section 179 deduction dollar limit
7. The maximum section 179 deduction you can elect for property you purchased and placed in service beginning in 2007 has increased to

A. $106,000

B. $112,000

C. $108,000

D. $125,000

What's New for 2008

Self-employment tax
8. The maximum net self-employment earnings subject to the social security part of the self-employment tax increases to ___________ for 2008.

A. $98,500
B. $97,500
C. $102,000
D. unlimited

Standard mileage rate

9.  The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2008 is 50.5 cents a mile for all business miles.

A. True

B.  False

Filing and Paying Business Taxes
Identification Numbers
10. The individual taxpayer identification number (ITIN) is issued to an alien who does not have a social security number and entitles the holder to social security benefits.

A. True
B. False

Employer Identification Number (EIN)
11. If you pay wages to one or more employees or file pension or excise tax returns, you must have an EIN.

A. True
B. False

Other payee
12. If you make payments to someone who is not your employee and you must report the payments on an information return, you do not need to get an EIN or social security number if the payment is to a corporation.

A. True
B. False

13. A payee who does not provide you with an employer identification number ("EIN") may be subject to backup withholding.

A. True
B. False

Do I Have To File an Income Tax Return?
14. If your net earnings from self-employment were less than ______________   in 2007 you do not have to file an income tax return unless required to do so per the instructions for Form 1040.

A. $200
B. $400
C. $1,000
D. $2,000

How Do I File?
15. If you operated more than one business as a sole proprietorship, you can use a single Schedule C to submit your net profit or loss from your business.

A. True
B. False

When is my tax return due?
16. If you use a fiscal year, your return is still due by April 15, 2008 for the fiscal year ended 2007.

A. True
B. False

How Do I Pay Income Tax?
17. You generally have to make estimated tax payments if you expect to owe taxes, including self-employment tax , of $1,000 or more when you file your return.

A. True
B. False

Self-Employment Tax
18. If you earned income as a statutory employee, you must pay self-employment tax (SE tax) on that income.

A. True
B. False

Social Security Coverage
19. Your payments of SE tax contribute to your coverage under the social security system coverage for:

A. Retirement benefits
B. Disability benefits
C. Survivor benefits
D. Hospital insurance (Medicare) benefits
E. All of the above.

20. The Social Security Administration ("SSA") will change its records to increase your self-employment income if you report it on a tax return after the 3 year, 3 month and 15 day time limit from when the income was earned.

A. True
B. False

Who must pay self-employment tax
21. You must pay SE tax and file Schedule SE if your net earnings from self-employment (excluding church employee income) were equal or more than:

A. $100
B. $108.28
C. $400
D. $1,200

22.  You must pay SE tax and file Schedule SE (Form 1040) if you had church employee income of $108.28 or more.

A.  True

B.  False

23.   The SE tax rules do not apply if you are already receiving social security or Medicare benefits.

A.  True

B.  False

SE tax rate
24. The SE tax rate on net earnings is:

A. 12.4%
B. 2.9%
C. 15.3%
D. 17%

Maximum earnings subject to SE tax
25. Only the first $97,500 of your combined wages, tips, and net earnings in 2007 is subject to any combination of the 12.4% social security part of the SE tax, social security tax, or railroad retirement tax.

A. True
B. False

26. All your combined wages, tips, and net earnings in 2007 are subject to any combination of the 2.9% Medicare part of the SE tax, social security tax, or railroad retirement (tier 1) tax.

A. True
B. False

27. You can deduct one-half of your SE tax as an adjustment to income on Form 1040.

A. True
B. False

Employment Taxes
28. Employment taxes include which of the following:

A. Social security and Medicare taxes.
B. Federal income tax withholding
C. Federal unemployment (FUTA)
D. All of the above.

29. If you incorrectly classify an employee as an independent contractor, you can not be held liable for employment taxes for that worker plus a penalty.

A. True
B. False

Form 2290
30. For certain trucks, truck tractors, and buses with a taxable gross weight of 55,000 pounds or more, there is a federal excise tax on use on public highways.

A. True
B. False

Information Returns Form 1099-MISC.
31. You do not use from 1099-MISC. to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment.

A. True
B. False

Penalties
32. If you do not file Form 1099-MISC or Form W-2 or do not correctly report the information the law provides for penalties.

A. True
B. False

33. If you receive more than $10,000 in one transaction, or two or more related business transactions in the form of a check drawn on a personal account, you must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business.

A. True
B. False

Accounting Periods and Methods Accounting Periods Calendar tax year
34. If you filed you first income tax return using the calendar tax year and you later begin business as a sole proprietor, you must continue to use the calendar tax year unless you get IRS approval to change it.

A. True
B. False

Fiscal tax year
35. A fiscal tax year can be 12 consecutive months ending on the last day of any month including December.

A. True
B. False

Accounting Methods
36. If you have two or more separate and distinct business, you must use the same accounting method to figure your taxable income and to keep your books.

A. True
B. False

Cash Method
37. If an inventory is necessary to account for your income, you must generally use an accrual method of accounting for sales and purchases.

A. True
B. False

Delaying receipt of income
38. If you hold checks or postpone taking possession of similar property from one tax year to another, you can avoid paying tax on the income.

A. True
B. False

Checks
39. If you receive a valid check by the end of the tax year but cannot cash or deposit the check until the following year, you do not have constructive receipt of income in that year.

A. True
B. False

Debts paid by another person or canceled
40. If your debts are paid by another person or are canceled by your creditors, you may have to report part or all of this debt relief as income.

A. True
B. False

Expenses

Expenses paid in advance
41. Under the cash method, you can deduct an expense you pay in advance only in the year to which it applies.

A. True
B. False

Accrual Method
42. If you are an accrual method taxpayer and sold a computer on December 28, but did not bill or receive payment until February of the following year, you must include the amount received for the computer in your current (December 28) year income.

A. True
B. False

Change in payment schedule for services
43. If you perform services for a basic rate specified in a contract, you can accrue income at a different rate based upon the timing of payments.

A. True
B. False

Advance payments for services
44. Under the accrual method, if you receive an advance payment for services you agree to perform by the end of the next tax year, you can choose to postpone including the advance payment in income until the next tax year.

A. True
B. False

Expenses
45. Your office supplies may qualify as a recurring expense under the accrual method, and be deducted prior to delivery (when economic performance occurs).

A. True
B. False

Special rule for related persons
46. Using the accrual method, you can deduct business expenses and interest owed to a related person who uses the cash method of accounting before you make the payment and the corresponding amount is includible in the related person's gross income.

A. True
B. False

Combination Method
47. If you use a combination method of accounting that includes the cash method, you must treat that combination method as the cash method.

A. True
B. False

Inventories
48. If you are a qualifying taxpayer and produce, or sell merchandise in your business, you must keep an inventory and use the accrual method for purchases and sales of merchandise.

A. True
B. False

Uniform Capitalization Rules
49. Under uniform capitalization rules, you must claim as a current deduction, direct costs and part of the indirect costs for production or resale activities.

A. True
B. False

50. You do not have to follow uniform capitalization rules for personal property you acquire for resale, if your average annual gross receipts are $10 million or less.

A. True
B. False

Dispositions of Business Property

Like-kind exchanges
51. A like-kind exchange is the exchange of property for the same kind of property and results in a taxable exchange.

A. True
B. False

Installment sales
52. An installment sale is a sale of property where you receive at least one payment after the tax year of the sale.

A. True
B. False

How Do I Figure a Gain or Loss Amount recognized
53. Your gain or loss recognized for tax purposes from a disposition of property, is always the same as the amount realized.

A. True
B. False

Is My Gain or Loss Ordinary or Capital
54. All property used in your trade or business is a capital asset.

A. True
B. False

Is My Capital Gain or Loss Short Term or Long Term
55. You must hold capital asset property for more than one year for to have a long-term capital gain or loss.

A. True
B. False

Where Do I Report Gains and Losses
56. Report gains and losses from dispositions of business property and depreciable property using:

A. Form 4684
B. Form 8824
C. Form 4797 or if gain use Schedule D
D. Form 6252

General Business Credit
57. Your general business credit for the current year may be increased later by the carryback of business credits from later years.

A. True
B. False

Research Credit
58. The research credit is generally 20% of the amount by which your research expenses for the year are more than your base amount.

A. True
B. False

Alternative Minimum Tax
59. Although you may not owe AMT, you must still figure your tentative minimum tax on Form 6251 if you claim a general business credit.

A. True
B. False

Business Income Introduction
60. You report the income from the sale of business assets, such as land and office buildings, on Schedule C or C-EZ.

A. True
B. False

Bartering for Property or Services
61. You are an artist and create a work of art to compensate your landlord for the rent-free use of your apartment. You must include the fair rental value of the apartment in our gross receipts.

A. True
B. False

Real Estate Rents
62. If you are a real estate dealer who receives income from renting real property or an owner of a hotel who provides services (maid services etc.) for guests, report the rental income on Schedule E.

A. True
B. False

Lease cancellation payments
63. Payments you receive from your lessee for canceling a lease must be reported in gross receipts in the year received.

A. True
B. False

General Rule
64. Generally, if your debt is canceled or forgiven, other than as a gift or bequest to you, you must include the canceled amount in your gross income for tax purposes.

A. True
B. False

Price Reduced after purchase
65. If you owe a debt to the seller for property you bought and the seller reduces the amount you owe, you generally must report income from the reduction.

A. True
B. False

Deductible debt
66. You receive services for your business on credit. The service vendor forgives part of the amount you owe and you are not bankrupt or insolvent. Under the cash method of accounting, you do not include the canceled debt in income.

A. True
B. False

Exclusions
67. Debt canceled in a bankruptcy case under title 11 of the U.S. Code (relating to Bankruptcy) must be included in income.

A. True
B. False

Qualified real property business debt
68. You can choose to exclude (up to certain limits) the cancellation of qualified real property business debt only if you reduce the basis of your depreciable real property by the amount excluded.

A. True
B. False

Recovery of items preciously deducted
69. If you recover a bad debt deducted in a previous year, you must include the recovery in income on Schedule C or C-EZ, even if all or part of the deduction in earlier years did not reduce your tax.

A. True
B. False

Recapture of Depreciation
Section 179 property
70. If you take a section 179 deduction for an asset and before the end of the asset's recovery period the percentage of business use drops to 50% or less, you must recapture part of the section179 deduction.

A. True
B. False

Items That Are Not Income
Construction allowances
71. If you enter into a lease after August 5, 1997, you can exclude from income the construction allowance you receive (in cash or as a rent reduction) from your landlord, if you receive it under a short-term lease of retail space and for the purpose of constructing or improving qualified long-term real property for use in your business at that retail space.

A. True
B. False

Exchange of like-kind property
72. If you exchange your business property or property you hold for investment solely for property of a like kind to be used in your business or to be held for investment, any gain is taxable and loss is deductible.

A. True
B. False

Accounting for Your Income

Income paid to a third party
73. You rent out your property and the rental agreement directs the lessee to pay the rent to your son. The amount paid to your son is gross income to your son rather than you.

A. True
B. False

Cash Discounts
74. The amount a seller permits you to deduct from the purchase price for prompt payment can either be deducted from the purchase price or credited to a cash discount account as income.

A. True
B. False

How to Figure Cost of Goods Sold
75. If you must account for an inventory in your business, you must generally use an accrual method of accounting for your purchases and sales.

A. True
B. False

Inventory at Beginning of Year
76. If you are a manufacturer or producer, beginning inventory is the cost of merchandise on hand at the beginning of the year that you will sell to customers and does not include work in process.

A. True
B. False

Donation of inventory
77. If you donate any inventory item to a charitable organization, the amount of your deductible contribution is the fair market value of the item minus the amount that would be ordinary income if you had sold the item at its fair market value on the date of the gift.

A. True
B. False

Figuring Gross Profit Businesses that sell services
78. You must figure the cost of goods sold even if the sale of merchandise is not an income-producing factor for your business.

A. True
B. False

Business Expenses
79. A business expense that is ordinary and necessary must be capitalized or included in the costs of goods sold.

A. True
B. False

Bad Debts
80. You can deduct the worthlessness of a debt created in your business only if the amount owed you was included in your gross income either for the year the deduction is claimed or for a prior year.

A. True
B. False

Car and Truck Expenses Local Transportation Expenses
81. Local business transportation expense includes expenses you have while traveling away from home overnight.

A. True
B. False

82. Generally, your tax home is your regular place of business, regardless of where you maintain your family home.

A. True
B. False

Methods for Deducting Car and Truck Expenses
83. If you choose to use the standard mileage rate for a year, you can deduct your actual expenses for that year except for business related parking fees and tolls.

A. True
B. False

Standard Mileage Rate
84. You can use the standard mileage rate if you operate four cars at the same time.

A. True
B. False

Actual Expenses
85. If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use.

A. True
B. False

Reimbursing Your Employees for Expenses
86. The reimbursement you can deduct for employee car and truck expenses is the same under an accountable and nonaccountable plan.

A. True
B. False

Depreciation
87. If property you acquire to use in your business is expected to last more than one year, you generally cannot deduct the entire cost as a business expense in the year you acquire it.

A. True
B. False

What property can be depreciated
88. Property placed in service and disposed of in the same year can be depreciated.

A. True
B. False

Depreciation Method
89. The method for depreciating most business and investment property placed in service after 1986 is called the Modified Accelerated Cost Recovery System (MACRS).

A. True
B. False

Section 179 deduction
90. You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service using a deduction known as the section 179 deduction.

A. True
B. False

Form 4562
91. You can use Schedule C-EZ if you have to use Form 4562 for depreciation and amortization.

A. True
B. False

Employees' Pay
92. You cannot deduct your own salary or any personal withdrawals you make from your business on Schedule C.

A. True
B. False

Fringe Benefits
93. You can not generally deduct the cost of fringe benefits you provide on your Schedule C in whatever category the cost falls.

A. True
B. False

94. You may be able to exclude all or part of the fringe benefits you provide from your employees' wages.

A. True
B. False

Insurance
95. You can generally deduct premiums you pay for insurance to secure a loan related to your business.

A. True
B. False

Self-employed insurance deduction
96. You may be able to deduct a percentage of the amount you paid during the tax year for medical insurance and qualified long-term care insurance for you and your family.

A. True
B. False

Prepayment
97. If you sign a 3-year insurance contract, you can deduct the premiums for all three years in the first year if you paid for all three years at that time.

A. True
B. False

Interest
98. If a loan is part business and part personal, you must divide the interest between the personal part and the business part with only the business part deductible.

A. True
B. False

Legal and Professional Fees
99. Legal and professional fees you pay to acquire business assets can usually be deducted rather than adding them to the basis of the property.

A. True
B. False

Tax Preparation Fees
100. You can deduct on Schedule C or C-EZ the cost of preparing that part of your tax return relating to your business as a sole proprietor.

A. True
B. False

Pension Plans
101. If you were a sole proprietor, you deduct contributions you make to the pension plan for yourself on line 19 of Schedule C, rather than on line 29 of Form 1040.

A. True
B. False

Rent Expense
102. You can deduct rent on Schedule C or C-EZ if the rent is for property you use in your business and if you have or will receive equity in or title to the property.

A. True
B. False

Taxes
103. You can deduct on Schedule C or C-EZ a state tax on gross income ( as distinguished from net income) directly attributable to your business.

A. True
B. False

Self Employment Tax
104. You can deduct one-half of your self-employment tax on Form 1040.

A. True
B. False

Sales Tax
105. Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government.

A. True
B. False

Travel, Meals and Entertainment
106. Your tax home is your regular place of business, regardless of where you maintain your family home.

A. True
B. False

Meals and Lodging
107. If your business trip is long enough that you need to stop for sleep or rest to properly perform your duties, you can only deduct the cost of meals and lodging if you stay over night.

A. True
B. False

Entertainment Expenses
108. In most cases, you can only deduct 50% of business-related expenses for entertaining a client, customer or employee.

A. True
B. False

109. You can deduct ordinary and necessary expenses to entertain a client or customer, but not an employee.

A. True
B. False

Reimbursing your employees for expenses
110. You can only deduct the amount you reimburse your employees for travel and entertainment expenses if you use an accountable plan but not if you use a nonaccountable plan.

A. True
B. False

Business Use of Your Home
111. To qualify to claim expenses for business use of your home, the use must be exclusive.

A. True
B. False

112. You must meet the exclusive use test to claim expenses for business use of your home for the storage of inventory or samples, or as a daycare facility.

A. True
B. False

Regular Use
113. To qualify under the regular use test, you meet the test if your business use of the area is only occasional or incidental, so long as you do not use that area for any other purpose.

A. True
B. False

Principal Place of Business
114. Your home office will qualify as your principal place of business for deducting expenses for its use, if you use it exclusively and regularly for administrative or management activities of your business and you have no other fixed location for such activities.

A. True
B. False

Deduction Limit
115. If your gross income from the business use of your home is less than your total business expenses, your deduction for certain expenses for the business use of your home is limited.

A. True
B. False

Other Expenses
116. You usually cannot deduct as business expenses:

A. Lobbying expenses
B. Political contributions
C. Donations to business organizations
D. Both A and B
E. None of the above are deductible

Course Evaluation
117. Indicate your professional designation.

A. CPA
B. Public Accountant
C. Enrolled Agent
D. CMA
E. Other ___________________

118. Indicate years professional experience in the course subject matter.

A. Less than 5
B. 5 to 10 years
C. 11 to 15 years
D. 16 to 20 years
E. 21 and over

119. Did the program meet your learning objectives?

A. Yes
B. No

120. Did the program materials contribute to the achievement of your learning objectives?

A. Yes
B. No

121. Did you find the program content relevant and timely?

A. Yes
B. No

122. Was the difficulty of the questions:

A. About right
B. Too easy
C. Too difficult

123. Was the indicated prerequisites (if any) for the program appropriate?

A. Yes
B. No

124. Do you plan to use additional courses from CPE Accounting & Tax Institute.

A. Yes
B. No