Question 1

Which of the following are not a benefit of a sole proprietorship?&#10;A)Availability of pension plans.&#10;B)Conduit taxation.&#10;C)Lack of business continuity.&#10;D)No legal formalities.

Accepted Answer

Lack of business continuity is not a benefit of a sole proprietorship; it is a disadvantage because the business does not continue if the owner dies or becomes incapacitated.

Question 2

The Section 121 exclusions is allowed:&#10;A)Once every four years.&#10;B)Once every two years.&#10;C)To a surviving spouse up to three years.&#10;D)To a surviving spouse up to one year.

Accepted Answer

The Section 121 exclusion allows a taxpayer to exclude up to $250,000 ($500,000 for married couples) of gain from the sale of their primary residence once every two years.

Question 3

Which of the following is not a benefit provided by a Business Overhead Expense insurance policy?&#10;A)Employee salary.&#10;B)Office supplies.&#10;C)Owner salary.&#10;D)Utilities.

Accepted Answer

Business Overhead Expense insurance typically covers the operating expenses of a business when the owner is unable to work due to a disability, but it does not cover the owner's salary.

Question 4

Payments for child support are _____ to the payee and _____ by the payor.&#10;A)Nontaxable / deductible.&#10;B)Nontaxable / nondeductible.&#10;C)Taxable / nondeductible.&#10;D)Taxable / deductible.

Accepted Answer

Under current U.S. tax law, child support payments are nontaxable to the recipient and nondeductible by the payer. This means the person receiving child support does not include it as taxable income, and the person paying child support cannot deduct the payments on their tax return.

Question 5

Which of the following will qualify as alimony?&#10;A)Cash payments to third parties.&#10;B)Promissory notes.&#10;C)Property.&#10;D)Services.

Accepted Answer

Alimony typically involves cash payments directly to an ex-spouse or, in some cases, to third parties on behalf of the ex-spouse (such as rent or medical expenses), under a divorce or separation agreement. Payments in the form of promissory notes, property, or services do not qualify as alimony under most legal definitions.

Question 6

Which of the following is an association of two or more owners to carry on a trade or business for profit and the owners are personally liable for malpractice-related claims resulting from negligence or misconduct?

A)Corporation.
B)General Partnership.
C)Limited Liability Partnership.
D)Sole Proprietorship.

Accepted Answer

A general partnership is an association of two or more owners to carry on a trade or business for profit. In a general partnership, the owners are personally liable for malpractice-related claims resulting from negligence or misconduct. This means that the partners' personal assets may be at risk in the event of a lawsuit or legal claim against the partnership.

Question 7

A single-member LLC is automatically considered to be:&#10;A)Corporation.&#10;B)Limited Partnership.&#10;C)Limited Liability Limited Partnership.&#10;D)Sole proprietorship.

Accepted Answer

A single-member LLC is not automatically considered a corporation or limited partnership. It is treated as a disregarded entity for tax purposes, meaning it is treated as a sole proprietorship.

Question 8

Which of the following unforeseen circumstances is eligible for a partial exclusion under Section 121?&#10;A)Change in employment.&#10;B)Legal separation.&#10;C)Work-related move if the taxpayer's new employment is more than 20 miles away from the principal residence (working from home).&#10;D)Work-related move if the taxpayer's new employment is more than 100 miles away from the former place of employment.

Accepted Answer

The answer of Which of the following unforeseen circumstances is...

Deck 22: Applications in Personal Financial Planning in Special Circumstances