1. c. The standard mileage rate was raised to 31 cents per mile for 1996 (for 1995, it was 30 cents).
2. d. The Social Security wage base is now $62,700. Inflation causes it to increase each year. However, you must pay Medicare taxes on everything you make.
3. c. Quarterly tax payments are due on April 15, June 15, September 15 and January 15 the following year.
4. b and c. Both Keogh plans and SEPs are tax-advantaged pension plans for small-business owners.
5. b. In 1995, the deduction for self-employed people's health insurance was increased to 30 percent.
6. b. Currently, the highest official tax rate for individuals is 39.6 percent, although the phaseout of personal exemptions and deductions can cause your actual effective rate to be even higher.
7. d. The highest corporate income tax rate is 39 percent.
8. a, b and d. Only corporations are taxed at the business level and are allowed to accumulate some profits without passing them on to be taxed at the shareholders' individual tax rates.
9. a. The IRS likes written evidence, created at the time the expense was incurred, and receipts and canceled checks are the best.
10. d. Working lunches where all the diners work for the same company aren't deductible.
11. d. The heating unit must be depreciated over a number of years, and the deduction for the car will be limited by the luxury auto limit to approximately $3,060.
12. a and c. Day-care operators, and retailers or wholesalers who store inventory at home and whose only fixed place of business is their home, are granted exceptions from the exclusive use test.
13. a and b. Although the IRS allows you to use any reasonable technique, methods a and b are the ones suggested in IRS publications.
14. True. Businesses with inventories are not allowed to use the cash basis of accounting.
15. a. The noncompete covenant cannot be written off as worthless: The fact that Wool is unable to compete with Bushe's business is irrelevant.
16. a. If business services are paid for in property, the fair market value must be included in the recipient's income.
17. False. Unless a taxpayer uses the accrual method, compensation generally must be reported as income in the year received, regardless of when the services giving rise to the commissions were performed.
18. b. An S corporation election can be revoked by a vote of shareholders who own more than 50 percent of the outstanding corporate shares.
19. True. As a practical matter, this means cash-basis taxpayers typically cannot take such a deduction since money is normally not included in income until it is received.
20. c. The basis of the new truck is the sum of the adjusted basis of the old equipment ($4,600) and the amount of cash paid ($4,000).