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Exam

1)

An advantage of the accrual method of computing taxable farm income

(1pts)

the result is a better indicator of true net farm income than values obtained from using the cash method.

the amount of taxable income that is reported in each tax year can be adjusted more easily

lower marginal tax rates

taxable income will always be less

2)

The goal of income tax management should be

(1pts)

to minimize taxable income

to maximize long-run, after-tax net income

to pay as little income tax as possible

to postpone paying as much tax as possible

3)

If a farm business incurs a net operation loss (NOL) in a certain tax year, the NOL:

(1pts)

can be used to reduce taxable income in a past tax year, only

can be used to reduce taxable income in a future tax year, only

cannot be used to reduce taxable income in another tax year

can be used to reduce taxable income in a past tax year or a future tax year

4)

Income that qualifies as a capital gain is also subject to self-employment tax.

(1pts)

True False

5)

A purchase of land is eligible for Section 179 expensing.

(1pts)

True False

6)

With the cash method, the cost of purchased feeder livestock is a tax deductible expense only in the year the animals are sold.

(1pts)

True False

7)

The adjusted tax basis on a depreciable asset is its

(1pts)

original cost

accumulated depreciation deducted so far

current market value

beginning basis less accumulated depreciation

8)

Taxpayers can use only the regular MACRS tax depreciation method.

(1pts)

True False

9)

Because of the half-year rule, a 5-year class life asset will still have some tax depreciation to deduct in the sixth tax year in which it is owned.

(1pts)

True False

10)

A tax credit reduces:

(1pts)

the amount of tax owed

income subject to self-employment tax

ordinary taxable income

the marginal tax rate

11)

The cash method of reporting taxable income has the potential for wide changes in income if the crop production from two years is sold in the same tax year.

(1pts)

True False

12)

Sales of crops and feeder livestock are usually taxed as both ordinary income and self employment income.

(1pts)

True False

13)

What is the MACRS class life for beef animals used for breeding purposes?

(1pts)

3 years

5 years

10 years

7 years

14)

During the first year of farming, a farmer can choose which accounting method to use for tax purposes by

(1pts)

notifying any certified public accountant

keeping the farm records according to teh method chosen

sending a certified letter to the IRS

using that method when completing the farm tax return for the year

15)

When a taxpayer is in the