TCP Discipline Capstone Practice Exam Quiz
Which of the following is NOT considered taxable income for a taxpayer?
A) Wages and salaries
B) Child support payments
C) Interest income
D) Dividends
What is the purpose of Form 1040EZ?
A) To report income and claim deductions
B) To apply for an extension of time to file
C) To report simple tax situations for individuals
D) To report business income and expenses
Which of the following is considered a tax credit?
A) Standard deduction
B) Earned Income Tax Credit (EITC)
C) Dependent exemption
D) Child tax deduction
For the purposes of tax compliance, what is the key difference between a tax deduction and a tax credit?
A) Tax deductions reduce taxable income, while tax credits reduce tax liability directly
B) Tax credits reduce taxable income, while tax deductions reduce tax liability directly
C) Tax deductions apply only to income earned in a foreign country, while tax credits apply to U.S.-earned income
D) There is no difference between the two
Which of the following is an example of a tax-deferred retirement account?
A) Roth IRA
B) Traditional IRA
C) 401(k)
D) Both B and C
A taxpayer may claim the Child Tax Credit for a qualifying child who is:
A) Under 18 years of age
B) Under 17 years of age
C) Under 16 years of age
D) Under 21 years of age
What is the maximum tax rate on long-term capital gains for a taxpayer in the 35% ordinary income tax bracket?
A) 0%
B) 15%
C) 20%
D) 25%
Which of the following is NOT a characteristic of an S corporation?
A) Shareholders must be U.S. citizens or residents
B) It is taxed as a partnership
C) It can have up to 500 shareholders
D) It avoids double taxation
What is the primary difference between a tax deduction and an exclusion?
A) Deductions reduce taxable income, while exclusions remove certain income from the tax base
B) Exclusions reduce taxable income, while deductions remove certain income from the tax base
C) Deductions only apply to business income, while exclusions only apply to individual income
D) There is no difference between the two
In tax planning, what does the concept of “tax deferral” mean?
A) Delaying tax payments to a future period without reducing the amount of tax due
B) Paying taxes in installments over a period of time
C) Increasing tax payments to meet future obligations
D) Reducing taxable income through deductions
What is the maximum amount that can be contributed to a traditional IRA in 2024 for an individual under 50 years of age?
A) $6,000
B) $7,000
C) $10,000
D) $12,000
A taxpayer who owns rental property must report income and expenses on which form?
A) Schedule C
B) Schedule D
C) Schedule E
D) Schedule F
Which of the following income sources is generally exempt from state income tax?
A) Interest from municipal bonds
B) Dividend income from stock
C) Wages from employment
D) Rental income from property located in the state
Which of the following entities is NOT subject to the “self-employment tax”?
A) Sole proprietorships
B) Partnerships
C) S corporations
D) C corporations
When should a taxpayer file for an extension of time to file their tax return?
A) Before the original filing deadline
B) After the filing deadline
C) Anytime during the tax year
D) Only if they owe taxes
Which of the following is the primary purpose of a tax audit?
A) To ensure compliance with tax laws and identify discrepancies
B) To determine if a taxpayer is eligible for additional deductions
C) To review tax-exempt organizations for compliance
D) To assess whether a taxpayer needs to pay estimated taxes
What is the primary advantage of utilizing a tax-deferred annuity?
A) It provides tax-free income
B) The taxpayer pays tax only on the growth of the annuity
C) It allows the taxpayer to deduct contributions
D) It is exempt from state income taxes
A taxpayer who files jointly with a spouse and has one qualifying child may qualify for which of the following?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Both A and B
D) Neither A nor B
What is the tax rate on ordinary income for a single filer in the 2024 tax year with a taxable income of $70,000?
A) 12%
B) 22%
C) 24%
D) 32%
Which form is used by a taxpayer to report the sale of securities or other capital assets?
A) Schedule A
B) Schedule C
C) Schedule D
D) Form 1040
What type of income is subject to the Net Investment Income Tax (NIIT)?
A) Salaries and wages
B) Interest, dividends, and capital gains
C) Social Security benefits
D) Military pension
Which of the following is true regarding tax treatment of dividends paid to shareholders of C corporations?
A) Dividends are fully deductible by the corporation
B) Dividends are taxed at the corporate tax rate
C) Dividends are taxed to the individual shareholders as income
D) Dividends are tax-exempt for individual shareholders
What is the primary purpose of tax-loss harvesting?
A) To increase taxable income by offsetting gains
B) To defer tax payments
C) To reduce taxable income by offsetting capital gains with losses
D) To claim more deductions for medical expenses
What is the tax consequence of withdrawing funds from a Roth IRA before age 59½?
A) No tax, provided the funds are withdrawn for medical expenses
B) Early withdrawal penalties may apply to both principal and earnings
C) Early withdrawal penalties apply only to the earnings
D) The entire withdrawal is taxed as ordinary income
Which of the following is an example of “income shifting” in tax planning?
A) Increasing business deductions
B) Moving taxable income to a lower tax bracket family member
C) Deferring income to the next tax year
D) Maximizing contributions to retirement accounts
Which tax document is typically used by a self-employed individual to report income and expenses?
A) Form 1040
B) Form 1065
C) Schedule C
D) Schedule E
Which of the following types of income is subject to both federal and state income tax?
A) Social Security benefits
B) Interest from U.S. Treasury bonds
C) Wages from employment
D) Disability benefits
What type of tax planning strategy involves making gifts to family members to shift income to lower tax brackets?
A) Estate tax planning
B) Charitable giving planning
C) Income splitting
D) Deferred tax planning
What is the IRS form used to request a ruling on the tax consequences of a proposed transaction?
A) Form 1120
B) Form 3115
C) Form 8889
D) Form 7004
What is the tax treatment for income from the sale of a primary residence?
A) Fully taxable
B) Excluded up to $250,000 ($500,000 for married taxpayers)
C) Excluded if the home was owned for at least 5 years
D) Taxed at the long-term capital gains rate regardless of ownership period
Which of the following is generally NOT considered a tax-exempt benefit?
A) Health insurance premiums paid by an employer
B) Employer contributions to a 401(k) plan
C) Tuition reimbursement from an employer
D) Cash bonuses from an employer
Which of the following is true about a “Qualified Plan”?
A) It allows employees to contribute pre-tax income to retirement
B) It must be established by a corporation or partnership
C) It cannot provide benefits for more than 25 employees
D) Contributions to qualified plans are always subject to FICA taxes
What is the “Kiddie Tax”?
A) A tax that applies to income earned by minors
B) A tax credit for children under 17
C) A tax on gifts given to minors
D) A tax on children who inherit property
Which of the following is NOT a typical tax planning strategy for businesses?
A) Depreciation of assets
B) Income shifting
C) Accelerating deductions into the current year
D) Deferring income recognition until the next year
Which of the following types of income is considered “passive income” under IRS rules?
A) Wages earned from a job
B) Income from rental properties
C) Income from a limited partnership investment
D) Both B and C
Which of the following is the correct treatment for expenses incurred while working from home in a home office?
A) The home office deduction is only available to self-employed taxpayers
B) The home office deduction applies to both employees and self-employed taxpayers
C) Only employees working for a qualified employer can take this deduction
D) The home office deduction can be claimed by anyone working remotely
What is the maximum contribution limit for a 401(k) plan in 2024 for individuals under the age of 50?
A) $18,000
B) $19,000
C) $20,500
D) $22,500
Which of the following is NOT deductible as a business expense?
A) Employee wages
B) Business-related travel expenses
C) Fines and penalties
D) Depreciation of business assets
A taxpayer who receives a tax refund in the current year must:
A) Include the refund in income if they itemized deductions in the prior year
B) Report the refund as income regardless of whether they itemized deductions
C) Report the refund as income only if they were audited in the prior year
D) Not report the refund as income
Which of the following is true about tax treatment for charitable contributions?
A) Only contributions to registered 501(c)(3) organizations are deductible
B) All charitable contributions are deductible, regardless of the recipient organization
C) Only cash donations are deductible
D) Donations of goods and services can always be deducted at full market value
What is the tax rate for qualified dividends for taxpayers in the highest ordinary income tax bracket (37%)?
A) 0%
B) 15%
C) 20%
D) 37%
What is the purpose of the Alternative Minimum Tax (AMT)?
A) To provide tax relief for middle-income taxpayers
B) To ensure that taxpayers with higher incomes pay a minimum amount of tax
C) To encourage taxpayers to contribute to charity
D) To discourage income splitting between married couples
Which of the following can be excluded from gross income under tax law?
A) Scholarships for degree programs
B) Employee fringe benefits
C) Military disability pay
D) All of the above
What is the “self-employment tax” rate on net earnings from self-employment?
A) 6.2% for Social Security, 1.45% for Medicare
B) 7.65% for Social Security and Medicare
C) 15.3% for Social Security and Medicare combined
D) 10.2% for Social Security, 2.8% for Medicare
What is the filing deadline for most individual tax returns?
A) March 15
B) April 15
C) May 15
D) June 15
Which of the following is an example of a tax-deferred income source?
A) Roth IRA
B) Traditional IRA
C) Municipal bond interest
D) Social Security benefits
What is the tax treatment for capital losses?
A) Capital losses can only offset capital gains
B) Capital losses can offset both capital gains and ordinary income, subject to a $3,000 limit per year
C) Capital losses are not deductible
D) Capital losses are deductible without limit against ordinary income
Which of the following is required for an employer to qualify for the Work Opportunity Tax Credit (WOTC)?
A) Hiring employees who are in targeted groups, such as veterans or ex-felons
B) Hiring employees who are over the age of 65
C) Hiring employees from outside the United States
D) Paying employees at least $100,000 per year
What is the key difference between a traditional IRA and a Roth IRA?
A) Contributions to a Roth IRA are tax-deductible, while contributions to a traditional IRA are not
B) Roth IRA distributions are taxed, while traditional IRA distributions are not
C) Roth IRA contributions are made with after-tax dollars, while traditional IRA contributions are made with pre-tax dollars
D) There is no difference
Which of the following types of income is subject to the Net Investment Income Tax (NIIT)?
A) Long-term capital gains
B) Rental income
C) Interest income
D) All of the above
In the case of a divorce, which of the following is true about alimony payments for tax purposes?
A) Alimony payments are taxable to the recipient and deductible by the payer (for divorces finalized before 2019)
B) Alimony payments are taxable to the recipient, but not deductible by the payer (for divorces finalized before 2019)
C) Alimony payments are neither taxable to the recipient nor deductible by the payer
D) Alimony payments are deductible by the payer and not taxable to the recipient (for divorces finalized after 2018)
Which of the following is NOT a consideration for tax planning in estate planning?
A) Gift taxes
B) Estate taxes
C) Tax treatment of inherited property
D) Taxability of life insurance premiums
How are qualified medical expenses treated under the medical expense deduction?
A) They must exceed 7.5% of adjusted gross income (AGI) to be deductible
B) They are fully deductible, regardless of income
C) They are deductible without any limits for taxpayers age 65 and older
D) They are not deductible under any circumstances
Which of the following types of income are not subject to federal income tax?
A) Social Security benefits
B) Interest from state-issued bonds
C) Dividend income
D) Wages from employment
What is the tax rate on income from U.S. Treasury bonds?
A) 0%
B) 15%
C) 20%
D) 37%
What is the maximum contribution limit for a Health Savings Account (HSA) in 2024 for individuals with self-only coverage?
A) $3,000
B) $3,650
C) $4,500
D) $6,500
Which of the following is TRUE regarding the taxation of Social Security benefits?
A) Social Security benefits are never taxed
B) Social Security benefits are only taxed if income exceeds certain thresholds
C) Social Security benefits are taxed at a flat rate of 15%
D) Social Security benefits are taxed at ordinary income rates, regardless of income level
Which of the following actions will NOT reduce a taxpayer’s taxable income for the current year?
A) Contributing to a traditional IRA
B) Claiming a child tax credit
C) Deducting student loan interest
D) Claiming the standard deduction
What is the maximum allowable deduction for charitable contributions made by an individual taxpayer under the “Adjusted Gross Income (AGI)” limit for cash contributions to qualifying organizations?
A) 25% of AGI
B) 30% of AGI
C) 50% of AGI
D) 60% of AGI
How is a taxpayer’s business expense deduction affected by the IRS’s “substantiation requirement”?
A) The taxpayer can deduct any business expenses without substantiation
B) The taxpayer must provide adequate records or receipts to substantiate business expenses
C) Only large businesses are required to substantiate their business expenses
D) Substantiation is only necessary for expenses above $500
What is the main reason a taxpayer would choose a tax-deferred retirement account (such as a traditional IRA) over a Roth IRA?
A) Taxpayers believe their income tax rate will be higher in retirement
B) Taxpayers prefer immediate tax relief through deductions
C) Taxpayers want tax-free withdrawals in retirement
D) Taxpayers want the ability to contribute higher amounts each year
Which of the following is true regarding self-employed individuals and the deduction of health insurance premiums?
A) Health insurance premiums are fully deductible as a business expense for self-employed individuals
B) Self-employed individuals cannot deduct health insurance premiums
C) Health insurance premiums are deductible only if the individual has employees
D) Health insurance premiums for self-employed individuals are deductible only up to a specified limit
Which of the following would most likely qualify for the “Earned Income Tax Credit” (EITC)?
A) A retired taxpayer receiving pension income
B) A taxpayer who is self-employed with a modest income
C) A taxpayer with investment income exceeding $5,000
D) A taxpayer who claims only children as dependents
Under which circumstance will a taxpayer NOT qualify for the tax benefits associated with a Health Savings Account (HSA)?
A) The taxpayer is enrolled in a high-deductible health plan
B) The taxpayer is under the age of 65
C) The taxpayer is covered by another health insurance plan that is not high-deductible
D) The taxpayer contributes the maximum allowable amount to the HSA
Which of the following business activities is considered a “hobby” rather than a business for tax purposes?
A) A taxpayer selling goods on eBay at a loss consistently for multiple years
B) A taxpayer providing services as a freelance graphic designer for multiple clients
C) A taxpayer running a profitable retail store
D) A taxpayer writing and publishing books with income from royalties
When is a taxpayer allowed to take a tax credit for education expenses under the American Opportunity Tax Credit (AOTC)?
A) When the student is in their first four years of postsecondary education
B) When the taxpayer claims a student who is not enrolled full-time
C) Only if the taxpayer paid the education expenses with tax-free scholarship funds
D) Only if the student has completed a graduate-level degree program
What is the main purpose of tax deductions and credits under tax planning strategies?
A) To reduce the total amount of taxable income subject to taxation
B) To increase the total amount of taxable income subject to taxation
C) To reduce the effective tax rate by increasing credits
D) To only apply to business expenses related to specific industries
What is the purpose of tax loss harvesting in investment strategies?
A) To increase a taxpayer’s tax liability
B) To reduce taxable income by offsetting gains with losses
C) To defer capital gains tax on investments until they are sold
D) To allow a taxpayer to avoid paying tax on interest income
What is the tax rate on long-term capital gains for taxpayers in the highest income tax bracket?
A) 0%
B) 10%
C) 15%
D) 20%
Which of the following is an example of an adjustment to income that is not subject to the AGI limitation?
A) Deducting mortgage interest on a primary residence
B) Deducting student loan interest
C) Contributing to a traditional IRA
D) Contributing to a health savings account (HSA)
What is the maximum lifetime exclusion for estate and gift taxes in 2024?
A) $5 million
B) $10 million
C) $12.92 million
D) $15 million
Which of the following is a requirement for taxpayers to qualify for the Child Tax Credit (CTC)?
A) The child must be under 21 years old
B) The child must be a U.S. citizen or U.S. national
C) The child must not have lived with the taxpayer for more than 6 months
D) The taxpayer must file as “Head of Household” to claim the credit
How are dividends from foreign corporations typically treated for U.S. tax purposes?
A) They are automatically exempt from U.S. taxes
B) They are subject to ordinary income tax rates, but a foreign tax credit can reduce the tax liability
C) They are taxed at a flat rate of 15%
D) They are not subject to tax in the U.S.
What tax advantage do taxpayers receive from investing in municipal bonds?
A) The interest income is always tax-free
B) The interest income is exempt from federal income tax
C) Municipal bonds are exempt from both federal and state income tax
D) Taxpayers are allowed to deduct the amount invested in municipal bonds from taxable income
Which of the following is true regarding the taxation of dividends from a domestic corporation?
A) All dividends are tax-free
B) Qualified dividends are taxed at long-term capital gains rates
C) All dividends are taxed as ordinary income
D) Dividends from small corporations are taxed at a flat rate of 10%
Which of the following tax-related actions are subject to penalties for underpayment?
A) Failing to pay estimated taxes on time
B) Failing to file for an extension to file taxes
C) Claiming deductions without proper documentation
D) Filing taxes on time but failing to include all income
Which of the following is true about a “Like-Kind Exchange” under tax law?
A) It allows taxpayers to defer capital gains taxes on exchanges of property of a similar kind
B) It applies only to real property transactions
C) It allows taxpayers to avoid paying taxes on any capital gains from the exchange
D) It only applies to transactions involving stocks or bonds
What is the current tax treatment of income from rental real estate?
A) It is taxed as ordinary income
B) It is subject to self-employment tax
C) It is taxed at capital gains rates
D) It is subject to passive activity loss rules
Which of the following is NOT eligible for the “Section 179 Deduction”?
A) Personal vehicles used for business purposes
B) Office furniture
C) Commercial real estate
D) Computers and software
What is the purpose of a “Tax Credit” as opposed to a “Tax Deduction”?
A) Tax credits reduce taxable income
B) Tax credits increase tax liability
C) Tax credits directly reduce the amount of tax due
D) Tax credits apply only to business-related expenses
Which of the following would typically qualify as a “capital asset” for tax purposes?
A) A taxpayer’s primary residence
B) Personal-use items such as clothing
C) Stocks or bonds held for investment purposes
D) Business inventory
How are the costs associated with an employee’s business-related education treated for tax purposes?
A) They are fully deductible as business expenses if they maintain or improve job skills
B) They are not deductible for employers but are deductible by employees
C) Only tuition costs are deductible, not books or supplies
D) Education costs are always considered personal and are not deductible
Under what condition is an individual taxpayer eligible for the “Saver’s Credit” (Retirement Savings Contributions Credit)?
A) The taxpayer is under 18 years old
B) The taxpayer’s contributions to a retirement account are made from a tax-exempt source
C) The taxpayer is not married and their income is below a specified threshold
D) The taxpayer is ineligible if they are a full-time student
Which of the following is considered “earned income” for purposes of calculating the Earned Income Tax Credit (EITC)?
A) Social Security benefits
B) Wages from a part-time job
C) Interest from investments
D) Alimony payments
In a like-kind exchange, what happens if the replacement property has a greater value than the property exchanged?
A) The difference is recognized as capital gains and taxed
B) The difference is treated as tax-free income
C) The taxpayer receives an automatic depreciation deduction on the additional value
D) The difference must be paid in cash immediately
For tax purposes, which of the following best describes the tax treatment of rental property depreciation?
A) Depreciation on rental property is deducted over a 27.5-year period for residential property
B) Depreciation on rental property is deducted over a 40-year period
C) Depreciation on rental property is deducted over a 10-year period
D) Depreciation is only allowed if the property is leased to a business
What is the maximum tax-free amount of employer-provided transportation benefits that can be excluded from taxable income in 2024?
A) $300 per month
B) $450 per month
C) $600 per month
D) $700 per month
Under the IRS rules for “cash-basis” taxpayers, when is income considered earned?
A) When the payment is received
B) When the service is provided
C) When the invoice is sent
D) When the payment is deposited in the taxpayer’s bank account
In a partnership, which of the following is true regarding the allocation of profits and losses?
A) Profits and losses must be allocated equally among partners
B) Profits and losses are allocated according to the partnership agreement
C) Losses cannot be allocated to partners if the partnership is in debt
D) Profits and losses are allocated based on the initial investment amount only
Which of the following is true about the “Alternative Minimum Tax” (AMT)?
A) The AMT is a separate tax system with different tax rates and a broader definition of income
B) AMT applies only to corporations
C) AMT allows a larger standard deduction than the regular tax system
D) AMT applies to every taxpayer regardless of income
What is the main purpose of the “Home Office Deduction” for self-employed taxpayers?
A) To deduct the cost of maintaining a residence for business meetings
B) To deduct the cost of home utilities used for business purposes
C) To deduct rent and mortgage interest for personal homes
D) To deduct all property costs related to any business activity
How is the “capital gains tax” rate determined for a taxpayer selling their primary residence?
A) The tax rate depends on the taxpayer’s ordinary income tax rate
B) The gain may be excluded if the taxpayer meets certain ownership and use requirements
C) All gains from the sale are automatically excluded from tax
D) The tax rate is fixed at 15% for everyone
Which of the following is NOT considered a “qualified expense” for purposes of the American Opportunity Tax Credit (AOTC)?
A) Tuition
B) Books
C) Room and board
D) Supplies required for coursework
When does a taxpayer need to begin making estimated tax payments to the IRS?
A) If they anticipate owing more than $1,000 in taxes after subtracting withholding and refundable credits
B) If they have already paid taxes for the year
C) If they are self-employed and have income from capital gains
D) If they are retired
How is “alimony” treated for tax purposes for divorces finalized before 2019?
A) Alimony is deductible for the payer and taxable to the recipient
B) Alimony is not deductible and not taxable
C) Alimony is deductible for the payer, but not taxable to the recipient
D) Alimony is taxable for the payer but not deductible
What is the tax treatment of interest on U.S. Treasury bonds for state income tax purposes?
A) It is taxable by both the federal and state governments
B) It is exempt from both federal and state taxes
C) It is taxable at the federal level but exempt from state taxes
D) It is taxable at the state level but exempt from federal taxes
What is the key difference between a “Traditional IRA” and a “Roth IRA”?
A) Traditional IRAs allow tax-free withdrawals, whereas Roth IRAs do not
B) Roth IRAs allow tax-free withdrawals, whereas Traditional IRAs allow tax deductions on contributions
C) Roth IRAs have no contribution limits, whereas Traditional IRAs have a limit
D) Both allow tax-free withdrawals, but Roth IRAs have lower contribution limits
Which of the following is an example of a “taxable fringe benefit” provided by an employer?
A) Employer-paid group term life insurance for coverage up to $50,000
B) Employer-paid health insurance premiums
C) Employer-paid parking for business purposes
D) Employer-paid personal use of a company vehicle
Which of the following best describes a “passive activity loss” for tax purposes?
A) A loss from rental property that cannot be deducted against other types of income unless the taxpayer materially participates
B) A loss from a business activity that can be deducted against any type of income
C) A loss from stock investments that can be deducted without limitation
D) A loss from selling personal property used in a business
What is the primary tax benefit of making “charitable contributions” in the form of appreciated securities rather than cash?
A) The donor can deduct only the fair market value of the securities
B) The donor can avoid paying taxes on the appreciation in value of the securities
C) The donor is not required to itemize deductions to claim the deduction
D) The donor can receive a larger deduction for the securities than for cash donations
What is the current tax treatment of the income earned from a “Roth 401(k)”?
A) The income is taxed when it is withdrawn in retirement
B) The income is not taxed, neither when contributed nor withdrawn
C) The income is taxed as ordinary income when it is contributed
D) The income is taxed at capital gains rates when withdrawn in retirement
Which of the following can be claimed as an itemized deduction on Schedule A?
A) State sales tax
B) Taxable interest income
C) Social Security benefits
D) Qualified business income
When is a taxpayer required to file an amended return (Form 1040-X)?
A) When they realize they made an error in their original return that results in more taxes owed
B) Only when they owe less tax than originally filed
C) When they receive a refund and change their mind about the filing status
D) When they want to reduce their tax liability
Under what condition can a taxpayer claim a deduction for business-related meals?
A) If the meal is considered “necessary and ordinary” for the business
B) If the meal is provided to an employee as a fringe benefit
C) If the meal is fully paid for by the taxpayer’s company
D) If the meal occurs after the conclusion of a business meeting
Which of the following best describes the tax treatment of “qualified dividends”?
A) They are taxed at ordinary income tax rates
B) They are taxed at the long-term capital gains tax rate
C) They are exempt from federal taxes
D) They are subject to an additional 3.8% net investment income tax
What is the maximum contribution limit to a Health Savings Account (HSA) for an individual with self-only coverage in 2024?
A) $3,500
B) $3,850
C) $4,850
D) $6,500
How is the “Child and Dependent Care Credit” calculated?
A) It is a fixed amount based on the taxpayer’s filing status
B) It is a percentage of eligible expenses paid for care of children under age 13
C) It is based on the number of children and their age
D) It is a tax-free amount that reduces the taxpayer’s taxable income
Which of the following is a tax-exempt organization under Section 501(c)(3)?
A) A political action committee
B) A private foundation
C) A business that donates profits to charity
D) A government-owned entity
What is the tax effect of a 1031 exchange for an individual taxpayer?
A) The taxpayer may defer recognition of capital gains if the exchange is like-kind
B) The taxpayer must immediately recognize capital gains regardless of the exchange
C) The taxpayer can avoid taxes on capital gains but must pay an additional surtax
D) The taxpayer’s basis in the replacement property is calculated based on the original property’s fair market value
What is the maximum amount of the “Earned Income Tax Credit” (EITC) for a taxpayer with three qualifying children in 2024?
A) $3,995
B) $7,430
C) $6,318
D) $1,500
Which of the following is the most common method for recognizing income from a long-term construction contract under the IRS “percentage-of-completion” method?
A) Recognize income as the costs are incurred and matched with profits
B) Recognize income when the contract is complete
C) Recognize income when cash payments are received
D) Recognize income in equal amounts over the term of the contract
Which of the following is a potential consequence of a “Tax Deficiency”?
A) The taxpayer is issued a tax refund
B) The taxpayer is subject to penalties and interest on unpaid taxes
C) The taxpayer may receive an extension on tax payments
D) The taxpayer’s tax return is automatically adjusted by the IRS
Which of the following types of income is exempt from federal taxation?
A) Interest from municipal bonds
B) Dividend income from a U.S. corporation
C) Interest from a bank savings account
D) Wages earned by a self-employed taxpayer
How is a “Standard Deduction” for a married couple filing jointly determined in 2024?
A) It is fixed at $25,900
B) It is based on the couple’s adjusted gross income
C) It is determined by a formula based on the number of children
D) It is calculated based on the age of the taxpayers
For the purposes of the “Foreign Tax Credit,” what is the credit allowed based on?
A) The amount of tax paid to a foreign government
B) The foreign country’s tax rate on income
C) The taxpayer’s residency status in the foreign country
D) The number of hours worked in the foreign country
In the case of a nonresident alien taxpayer, which of the following income types is subject to withholding tax?
A) Capital gains
B) Wages from employment in the U.S.
C) Social Security benefits
D) Interest income from a U.S. bank
Which of the following tax credits is available for taxpayers who adopt a child?
A) Child Tax Credit
B) Adoption Credit
C) Dependent Care Credit
D) Education Credit
Which of the following tax-exempt accounts allows for tax-free withdrawals if the funds are used for qualifying medical expenses?
A) Roth IRA
B) Health Savings Account (HSA)
C) 401(k)
D) 529 Plan
Which of the following qualifies as a “qualified business income” (QBI) deduction under Section 199A for taxpayers engaged in a qualified trade or business?
A) Rental income from real estate property
B) Dividends from stock investments
C) Interest income from bonds
D) Salary from employment
When is a “capital gain” considered “long-term” for tax purposes?
A) If the asset was held for over one year
B) If the asset was inherited
C) If the asset was sold within 12 months
D) If the asset was sold within 6 months
Under what circumstances can a taxpayer claim a “deduction for business meals”?
A) Only if the meal is directly related to the active conduct of a trade or business
B) Only if the meal is provided to an employee as part of their compensation package
C) If the taxpayer is meeting with family members to discuss business
D) If the meal is purchased while traveling for personal reasons
Which of the following tax credits allows taxpayers to offset the cost of tuition and required fees?
A) American Opportunity Tax Credit
B) Earned Income Tax Credit
C) Lifetime Learning Credit
D) Child Tax Credit
How does the IRS treat the income from “self-employment” for tax purposes?
A) It is exempt from self-employment tax if the taxpayer has business expenses
B) It is subject to both income tax and self-employment tax
C) It is only subject to income tax
D) It is subject to an additional 5% tax
Which of the following tax provisions allows taxpayers to exclude a portion of their employer-provided health insurance premiums?
A) Health Savings Account (HSA)
B) Flexible Spending Account (FSA)
C) Premiums paid for long-term care insurance
D) Employer-sponsored health plans
Under which of the following situations is a “Roth IRA” contribution not allowed?
A) The taxpayer is over the age of 50
B) The taxpayer has income from a salary
C) The taxpayer’s modified adjusted gross income exceeds the limit for the tax year
D) The taxpayer is a nonresident alien
Which of the following is a requirement for a “Qualified Business Income” deduction under Section 199A?
A) The business must be an S corporation or partnership
B) The business must be based in the United States
C) The business must be a C corporation
D) The business must have total revenue exceeding $10 million
Which of the following forms is used to report rental income and expenses?
A) Form 1040
B) Form 8889
C) Schedule E
D) Form 8862
Under the Tax Cuts and Jobs Act, what is the maximum corporate tax rate for C corporations?
A) 25%
B) 21%
C) 15%
D) 30%
In the context of tax planning, which of the following is the primary goal of tax-deferred investments?
A) To reduce current-year taxable income
B) To maximize interest income for immediate use
C) To avoid tax on interest income indefinitely
D) To defer taxes until retirement or withdrawal
How are “unreimbursed employee expenses” treated for tax purposes in 2024?
A) They are generally deductible as miscellaneous itemized deductions
B) They are deductible if the employee’s income is above a certain threshold
C) They are fully deductible by any employee working at least 30 hours per week
D) They are no longer deductible under the Tax Cuts and Jobs Act
Which of the following is an example of a “tax-free fringe benefit”?
A) Employer-provided parking
B) Employer contributions to a 401(k)
C) Employer-paid health insurance premiums
D) Bonuses paid to employees
Which of the following types of income are generally subject to the “Net Investment Income Tax” (NIIT)?
A) Long-term capital gains
B) Wages earned from employment
C) Alimony payments
D) Social Security benefits
How are “capital losses” treated on a taxpayer’s tax return?
A) They can offset an unlimited amount of capital gains
B) They are deductible against ordinary income up to $3,000 per year
C) They cannot be used to offset any other income
D) They are deducted only from other passive income
Which of the following is an exception to the general rule for “taxable gifts”?
A) Gifts to a political organization
B) Gifts of property for personal use
C) Gifts to a charity that exceed $20,000
D) Gifts of stocks to family members
Which of the following best describes the “Alternative Minimum Tax” (AMT)?
A) It is an additional tax on income that is subject to a higher tax rate
B) It is designed to ensure that taxpayers who claim significant deductions still pay a minimum amount of tax
C) It is only applicable to corporate taxpayers
D) It is automatically applied to all taxpayers with taxable income over $1 million
What is the tax treatment of “qualified scholarships”?
A) They are always taxable as income
B) They are generally not taxable if used for tuition and related expenses
C) They are always exempt from federal tax, regardless of how they are spent
D) They are taxable unless used for room and board
How are “inheritances” generally treated for tax purposes?
A) They are subject to estate tax
B) They are taxable as ordinary income
C) They are not subject to income tax for the recipient
D) They are taxed at the recipient’s marginal tax rate
Which of the following qualifies for a tax credit under the “Saver’s Credit”?
A) Contributions to a traditional IRA by a taxpayer earning under $32,000
B) Contributions to a Roth IRA for a taxpayer earning above the income limit
C) Contributions to a 401(k) by an employer
D) Employer match to a pension plan
Under which of the following situations can a taxpayer avoid the 10% penalty on early distributions from a retirement account?
A) The taxpayer turns 55 in the year of distribution
B) The taxpayer uses the distribution for educational expenses
C) The taxpayer is purchasing a new home
D) The taxpayer is permanently disabled
Which of the following types of tax-exempt bonds are typically issued by state and local governments?
A) Treasury bonds
B) Municipal bonds
C) Corporate bonds
D) Foreign bonds
What is the tax treatment of “unrealized gains” in the context of investments?
A) They are taxed immediately upon being realized
B) They are not taxed until the asset is sold
C) They are taxed on an annual basis, regardless of whether the asset is sold
D) They are only taxable in certain states
Which of the following is NOT a requirement for an expense to qualify as a “business expense” for tax purposes?
A) The expense must be ordinary and necessary
B) The expense must be directly related to the taxpayer’s primary source of income
C) The expense must be reasonable in amount
D) The expense must be documented with receipts or records
Which of the following is NOT deductible as a “charitable contribution” under IRS rules?
A) Contributions to a 501(c)(3) organization
B) Donations to a political party
C) Donations of property to a qualified charity
D) Cash donations to a religious institution
Which of the following best describes the tax treatment of “gains from the sale of a primary residence”?
A) The gains are always taxable as capital gains
B) The first $250,000 of gain is exempt from tax for single filers, and $500,000 for married filers
C) The gains are taxable if the taxpayer owned the home for less than five years
D) The entire gain is subject to self-employment tax
How is a “traditional IRA” taxed upon withdrawal?
A) The amount withdrawn is subject to ordinary income tax
B) The amount withdrawn is subject to capital gains tax
C) The amount withdrawn is tax-free
D) The amount withdrawn is subject to self-employment tax
Which of the following is the primary purpose of a “529 Plan”?
A) To fund medical expenses
B) To pay for higher education expenses
C) To provide tax-free investment income
D) To save for retirement
What is the maximum contribution limit for a “401(k)” plan in 2024 for individuals under 50?
A) $18,500
B) $22,500
C) $26,000
D) $25,000
Which of the following is the definition of “taxable income”?
A) The total amount of income earned by a taxpayer
B) The amount of income that is subject to federal income tax after deductions and exemptions
C) The amount of income earned from sources outside the United States
D) The amount of income after non-taxable benefits are subtracted
Which of the following is true about “employee stock options”?
A) The exercise of stock options is always taxable
B) Employees do not pay tax until they sell the shares they acquire from exercising stock options
C) Stock options are always tax-free
D) The amount paid for stock options is deducted from taxable income
Which of the following is the maximum tax rate on qualified dividends in 2024?
A) 15%
B) 20%
C) 23.8%
D) 10%
Under the Tax Cuts and Jobs Act, how is the “corporate alternative minimum tax” (AMT) treated?
A) It was eliminated for tax years beginning after 2017
B) It remains in place with a reduced rate
C) It is applicable only to large corporations
D) It is now applied at a flat rate for all corporations
What type of income is subject to the “kiddie tax”?
A) Income earned by a child under 18 from interest or dividends
B) Income earned by a child under 18 from wages
C) Income earned by a child under 18 from business activities
D) Income earned by a child under 18 from rental property
Under what circumstances can an individual taxpayer deduct “business expenses” related to a “home office”?
A) The taxpayer must have a separate room in their home for business purposes
B) The taxpayer must be a full-time employee of another company
C) The taxpayer must be self-employed
D) The taxpayer must work at least 30 hours per week from their home office
Which of the following is an example of a “taxable fringe benefit”?
A) Employer-provided health insurance
B) Employer-paid tuition
C) Company car for personal use
D) Meal allowance for travel
In the context of tax planning, what does “income splitting” refer to?
A) Dividing income between family members to reduce the overall tax liability
B) Dividing income between different investment types to minimize tax
C) Allocating income from multiple businesses to reduce total taxable income
D) Using a portion of income to fund tax-exempt investments
Which of the following would qualify for the “earned income tax credit” (EITC)?
A) A taxpayer with investment income exceeding $3,500
B) A taxpayer who has no earned income but qualifies for a child tax credit
C) A taxpayer with earned income under the threshold limits, and eligible children
D) A taxpayer who is self-employed with no children
What is the maximum amount of tax-deductible student loan interest in 2024?
A) $2,000
B) $1,500
C) $1,000
D) $3,000
Which of the following is NOT a type of tax-deferred retirement account?
A) 401(k)
B) Traditional IRA
C) Roth IRA
D) Health Savings Account (HSA)
Under the “Tax Cuts and Jobs Act,” which of the following deductions was suspended through 2025?
A) Mortgage interest deduction
B) State and local tax deduction (SALT)
C) Charitable contribution deduction
D) Standard deduction for single filers
Which of the following actions would result in a taxpayer incurring a “penalty for underpayment of estimated tax”?
A) Failure to pay the estimated taxes owed by the due date
B) Failure to file the tax return by the due date
C) Claiming improper deductions
D) Making excess contributions to a retirement plan
What is the tax treatment of “disability income” received by an employee from their employer’s disability plan?
A) It is always subject to income tax
B) It is taxable only if the employee paid the premiums
C) It is tax-free to the employee
D) It is subject to self-employment tax
Which of the following deductions are available to taxpayers who itemize deductions?
A) State and local income tax
B) Standard deduction for single filers
C) Employer contributions to a 401(k)
D) Interest on personal credit card debt
How is income from a “Roth IRA” taxed when withdrawn?
A) It is fully taxed as ordinary income
B) It is partially taxed depending on the contribution period
C) It is tax-free if the account has been open for at least five years and the taxpayer is over 59½
D) It is taxed only on contributions, not earnings
Which of the following expenses qualifies as a “business expense” under IRS guidelines for self-employed taxpayers?
A) Home office furniture
B) Non-deductible interest payments on personal loans
C) Travel expenses related to vacation
D) Life insurance premiums for the self-employed taxpayer
In tax planning, what is a “tax shelter”?
A) An investment strategy that allows for the deferral of tax payments
B) An illegal scheme to evade taxes
C) A tax credit designed to incentivize charitable giving
D) A tax-exempt investment option
Which of the following types of income is subject to the “Net Investment Income Tax” (NIIT)?
A) Rental income from real estate
B) Employment income
C) Wages from a part-time job
D) Child support payments
What is the maximum “Standard Deduction” for a married couple filing jointly in 2024?
A) $27,700
B) $25,900
C) $22,000
D) $12,400
Which of the following items would be included in “gross income”?
A) Gifts from family members
B) Employer-paid health insurance premiums
C) Interest income from a savings account
D) Life insurance proceeds
Which of the following is NOT deductible as a “business expense” for self-employed taxpayers?
A) Health insurance premiums
B) Meals and entertainment expenses related to business meetings
C) Commuting expenses between home and a primary work location
D) Office supplies purchased for business use
How are “capital gains” taxed?
A) They are taxed at a fixed 25% rate
B) They are taxed based on the taxpayer’s regular tax bracket
C) They are taxed at long-term capital gain rates, which are lower than ordinary income tax rates
D) They are taxed only when sold after one year
What is the maximum “annual exclusion” amount for gifts made by an individual in 2024?
A) $10,000
B) $15,000
C) $25,000
D) $50,000
Which of the following is an example of “non-deductible” expenses for tax purposes?
A) Charitable donations
B) Meals and entertainment
C) Interest on business loans
D) Personal living expenses
Which of the following actions would disqualify a taxpayer from claiming the “child tax credit”?
A) The child is under 17 years old
B) The child does not have a valid Social Security number
C) The taxpayer claims the child as a dependent
D) The child resides with the taxpayer for more than six months
What is the tax treatment of “health savings accounts” (HSAs)?
A) Contributions are deductible, earnings grow tax-free, and withdrawals are tax-free for qualified medical expenses
B) Contributions are taxable, earnings grow tax-free, and withdrawals are tax-free for qualified medical expenses
C) Contributions are not deductible, but withdrawals are tax-free for qualified medical expenses
D) Contributions and earnings are tax-free, but withdrawals are taxable
Which of the following statements is true regarding “self-employment tax”?
A) Self-employment tax is only applicable to business owners who are sole proprietors
B) Self-employment tax includes both Social Security and Medicare taxes
C) Self-employment tax only applies to the first $140,000 of income
D) Self-employment tax is paid only by employees who work remotely
How is a “Roth IRA” different from a “Traditional IRA” for tax purposes?
A) Contributions to a Roth IRA are tax-deductible, while contributions to a Traditional IRA are not
B) Qualified withdrawals from a Roth IRA are tax-free, while withdrawals from a Traditional IRA are taxed as ordinary income
C) Roth IRAs are subject to required minimum distributions, while Traditional IRAs are not
D) Roth IRA contributions are limited to higher-income earners, while Traditional IRAs are open to all taxpayers
Which of the following is an example of a “like-kind exchange” under Section 1031 of the Internal Revenue Code?
A) A swap of real estate for cash
B) A trade of business equipment for other business property
C) A swap of stocks for bonds
D) A trade of collectibles for real estate
What is the maximum contribution limit to an “HSA” (Health Savings Account) in 2024 for an individual with self-only coverage?
A) $3,650
B) $7,300
C) $4,500
D) $6,500
Which of the following is an example of “taxable interest income”?
A) Interest from municipal bonds
B) Interest on government bonds
C) Interest from a savings account
D) Interest on life insurance proceeds
Which of the following is NOT an allowable deduction for “business use of a vehicle”?
A) Gas and maintenance costs
B) Depreciation of the vehicle
C) Commuting costs from home to the office
D) Business-related mileage
How is “unearned income” taxed in the case of a “minor”?
A) It is taxed at the child’s tax rate
B) It is taxed at the parent’s tax rate under the “kiddie tax” rules
C) It is exempt from taxes
D) It is taxed at the maximum individual tax rate
Which of the following expenses is deductible by a business owner for their “home office”?
A) Mortgage payments on the entire home
B) Utilities for the entire home
C) Rent for the office portion of the home
D) Improvements to the entire home
How are “unreimbursed business expenses” treated for an employee?
A) They are deductible as “miscellaneous itemized deductions”
B) They are always deductible from the employee’s wages
C) They are never deductible
D) They are deductible only if the employee is self-employed