CPA Exam Practice Test for Tax Compliance and Planning
Which of the following is considered taxable income for an individual?
A) Interest on municipal bonds
B) Child support payments
C) Alimony received for divorces finalized after 2018
D) Gifts received from friends
What is the maximum amount of Section 179 expense deduction a taxpayer can claim for 2024?
A) $1,000,000
B) $1,050,000
C) $1,080,000
D) $1,100,000
Which of the following is a characteristic of a nonqualified deferred compensation plan?
A) Contributions are tax-deferred until distribution
B) Employer contributions are immediately taxable to the employee
C) Employee contributions are tax-deferred until distribution
D) Employer contributions are tax-deductible when made
Which of the following is a tax credit that reduces the amount of tax owed on a dollar-for-dollar basis?
A) Child Tax Credit
B) Standard Deduction
C) Itemized Deductions
D) Taxable Income
What is the tax treatment of interest income from municipal bonds?
A) Taxable at the federal level but exempt from state taxes
B) Taxable at the state level but exempt from federal taxes
C) Exempt from both federal and state taxes
D) Taxable at both federal and state levels
Which of the following is a requirement for a taxpayer to qualify for the Child Tax Credit?
A) The child must be under 17 years old at the end of the tax year
B) The child must be a U.S. citizen or resident alien
C) The child must be claimed as a dependent on the taxpayer’s return
D) All of the above
Which of the following is a tax advantage of contributing to a traditional 401(k) plan?
A) Contributions are made with after-tax dollars
B) Earnings grow tax-deferred until withdrawal
C) Withdrawals are tax-free in retirement
D) Contributions are not subject to annual contribution limits
What is the maximum annual contribution limit for an individual to a Health Savings Account (HSA) in 2024?
A) $3,650
B) $3,850
C) $4,000
D) $4,150
Which of the following is a tax benefit of owning a home?
A) Deductibility of mortgage interest payments
B) Exclusion of rental income from taxation
C) Deductibility of property taxes paid
D) Both A and C
Which of the following is a requirement for a taxpayer to qualify for the Earned Income Tax Credit (EITC)?
A) The taxpayer must have a qualifying child
B) The taxpayer must be at least 25 years old
C) The taxpayer must have earned income below a certain threshold
D) All of the above
What is the tax treatment of qualified dividends?
A) Taxed at ordinary income tax rates
B) Taxed at capital gains tax rates
C) Exempt from taxation
D) Taxed at a flat rate of 15%
Which of the following is a tax advantage of contributing to a Roth IRA?
A) Contributions are tax-deductible in the year they are made
B) Earnings grow tax-deferred until withdrawal
C) Qualified withdrawals are tax-free
D) Contributions are not subject to annual contribution limits
Which of the following is a requirement for a taxpayer to qualify for the American Opportunity Tax Credit?
A) The student must be enrolled at least half-time in a degree program
B) The student must not have completed the first four years of post-secondary education
C) The student must not have a felony drug conviction
D) All of the above
What is the maximum annual contribution limit for an individual to a traditional IRA in 2024?
A) $5,000
B) $5,500
C) $6,000
D) $6,500
Which of the following is a tax advantage of contributing to a 529 College Savings Plan?
A) Contributions are tax-deductible at the federal level
B) Earnings grow tax-deferred and qualified withdrawals are tax-free
C) Contributions are tax-deductible at the state level
D) Both B and C
Which of the following is a requirement for a taxpayer to qualify for the Lifetime Learning Credit?
A) The student must be enrolled at least half-time in a degree program
B) The student must be pursuing a degree or other recognized education credential
C) The student must not have a felony drug conviction
D) All of the above
What is the tax treatment of Social Security benefits?
A) Taxable at ordinary income tax rates
B) Exempt from taxation
C) Taxable only if the taxpayer’s income exceeds certain thresholds
D) Taxed at a flat rate of 15%
Which of the following is a tax advantage of contributing to a traditional 401(k) plan?
A) Contributions are made with after-tax dollars
B) Earnings grow tax-deferred until withdrawal
C) Withdrawals are tax-free in retirement
D) Contributions are not subject to annual contribution limits
Which of the following is a requirement for a taxpayer to qualify for the 0% capital gains tax rate?
A) The taxpayer must hold the asset for at least one year before selling it.
B) The taxpayer must have taxable income below a certain threshold.
C) The taxpayer must be married and filing jointly.
D) The taxpayer must be over the age of 60.
What is the maximum contribution limit for a SIMPLE IRA in 2024?
A) $12,500
B) $14,000
C) $16,500
D) $19,000
Which of the following types of income is subject to self-employment tax?
A) Wages from a salaried position
B) Rental income from real estate
C) Income from a sole proprietorship
D) Interest income from bonds
What is the tax treatment of long-term capital gains for a taxpayer in the 35% tax bracket?
A) Taxed at 15%
B) Taxed at 20%
C) Taxed at 28%
D) Taxed at 35%
Which of the following would not be considered tax-exempt income?
A) Municipal bond interest
B) Gifts received from a friend
C) Child support payments
D) Alimony received for divorces finalized before 2019
What is the maximum annual contribution limit for a Roth IRA in 2024 for a single taxpayer under age 50?
A) $5,000
B) $5,500
C) $6,000
D) $6,500
Which of the following would most likely be subject to the Alternative Minimum Tax (AMT)?
A) Mortgage interest on a first home
B) Deduction for state and local income taxes
C) Charitable contributions
D) Exercising incentive stock options
What is the tax treatment of unemployment benefits?
A) Taxable as ordinary income
B) Tax-free if under a certain income threshold
C) Taxable at a flat 10% rate
D) Exempt from federal income tax
Which of the following best describes a tax deferral?
A) A tax credit that reduces taxes owed.
B) A tax deduction that reduces taxable income.
C) A situation where taxes are delayed until a future date.
D) A situation where taxes are forgiven altogether.
What is the maximum contribution limit for an employee to a 401(k) plan in 2024?
A) $18,000
B) $19,000
C) $20,500
D) $23,000
For tax purposes, which of the following is the most favorable method of accounting for inventory for a taxpayer who anticipates selling inventory at a loss in the near future?
A) FIFO (First In, First Out)
B) LIFO (Last In, First Out)
C) Specific Identification
D) Weighted Average Cost
What is the tax treatment of employer-provided health insurance premiums paid on behalf of an employee?
A) The premiums are included in the employee’s taxable income.
B) The premiums are tax-deductible for the employer but taxable to the employee.
C) The premiums are not taxable to the employee.
D) The premiums are taxable as a fringe benefit.
Which of the following is considered a capital asset for tax purposes?
A) Inventory held by a business
B) Real estate used in a trade or business
C) Stocks held for investment purposes
D) Depreciable property used in a business
Which of the following is a tax advantage of contributing to a traditional IRA?
A) Contributions are tax-free at the time of contribution
B) Contributions are tax-deductible in the year they are made
C) Earnings grow tax-free
D) Withdrawals are tax-free in retirement
Which of the following is considered “earned income” for purposes of calculating the Earned Income Tax Credit (EITC)?
A) Interest income
B) Wages and salaries
C) Dividends from stocks
D) Rental income from property
What is the maximum standard deduction available for a married couple filing jointly in 2024?
A) $12,400
B) $24,800
C) $25,100
D) $27,000
In which of the following situations would a taxpayer be subject to the 3.8% Net Investment Income Tax (NIIT)?
A) The taxpayer has wages over $250,000
B) The taxpayer has rental income and dividends, with MAGI above $200,000
C) The taxpayer earns income from self-employment
D) The taxpayer has long-term capital gains below $30,000
Which of the following is the tax treatment of the gain on the sale of a primary residence?
A) All gains are subject to capital gains tax.
B) Up to $250,000 ($500,000 for married couples) of gain is excluded from taxation, if certain requirements are met.
C) All gains are taxed as ordinary income.
D) The gain is taxable only if the property is sold for more than twice its original cost.
Which of the following is not a criterion for determining whether a worker is an independent contractor or an employee under IRS guidelines?
A) The degree of control the employer has over the worker’s work
B) The worker’s ability to work for other clients
C) The worker’s investment in equipment
D) The worker’s relationship to the employer’s business
Which of the following is true about the “kiddie tax”?
A) Unearned income of children under age 18 is taxed at the parent’s tax rate.
B) Unearned income of children under age 24 is taxed at the child’s tax rate.
C) The kiddie tax only applies to income earned from self-employment.
D) The kiddie tax applies only to interest income over $1,000.
What is the maximum income threshold for an individual taxpayer to qualify for the 0% capital gains tax rate in 2024?
A) $40,000 for single filers, $80,000 for married couples
B) $50,000 for single filers, $100,000 for married couples
C) $75,000 for single filers, $150,000 for married couples
D) $100,000 for single filers, $200,000 for married couples
Which of the following is considered an “adjustment to income” for tax purposes?
A) Mortgage interest paid on a second home
B) Childcare expenses
C) Contributions to a traditional IRA
D) Charitable contributions
Which of the following is not considered taxable income for an employee?
A) Salary
B) Employee fringe benefits
C) Employer-paid health insurance premiums
D) Bonuses
Which of the following is the tax treatment of employer-provided transportation benefits, such as parking or transit passes?
A) Fully taxable to the employee
B) Taxable up to a limit specified by the IRS
C) Fully deductible by the employer
D) Excluded from taxable income for the employee
Which of the following is an example of a tax-deferred investment account?
A) Roth IRA
B) Traditional IRA
C) Health Savings Account (HSA)
D) 529 College Savings Plan
Which of the following would be subject to the self-employment tax?
A) Interest earned on a savings account
B) Wages from an employer
C) Rental income from real estate
D) Earnings from a freelance graphic design business
Which of the following describes the tax treatment of a tax-exempt bond interest income?
A) Exempt from federal income tax, but subject to state income tax
B) Exempt from both federal and state income tax
C) Taxable at both the federal and state level
D) Taxable at the federal level, but exempt from state taxes
Which of the following is true about employer-provided educational assistance?
A) The amount is fully taxable to the employee.
B) The amount is excluded from taxable income up to $5,250 per year.
C) The amount is subject to social security and Medicare taxes.
D) The amount is deductible by the employer but not the employee.
What is the purpose of Form 8889?
A) To claim deductions for student loan interest
B) To report contributions and distributions from a Health Savings Account (HSA)
C) To report long-term capital gains
D) To calculate the child tax credit
What is the tax treatment of a gift from one individual to another?
A) The gift is taxable to the recipient.
B) The gift is taxable to the donor if it exceeds $15,000.
C) The gift is taxable to the donor if it exceeds $25,000.
D) The gift is always taxable to the donor.
What is the definition of a “qualifying relative” for purposes of claiming a dependent on a tax return?
A) A person who is related to the taxpayer and lives with the taxpayer for at least 6 months.
B) A person who is either a relative or unrelated but lives with the taxpayer for more than half the year.
C) A person who is a relative and has gross income less than the exemption amount.
D) A person who is a relative or non-relative with gross income greater than the exemption amount.
What is the maximum annual contribution limit for an HSA (Health Savings Account) in 2024?
A) $3,650 for individual coverage
B) $3,850 for family coverage
C) $4,000 for individual coverage
D) $5,000 for family coverage
Which of the following is the most common way to reduce the taxable estate for estate tax purposes?
A) Making charitable contributions
B) Setting up a living trust
C) Donating appreciated stock
D) Using the annual gift tax exclusion
Which of the following is generally true about capital losses?
A) They can only offset capital gains of the same type (long-term vs. short-term).
B) They can offset any type of income, including wages.
C) They can offset capital gains, and up to $3,000 of ordinary income per year.
D) They can be carried forward to offset income in future years, but not carried back.
What is the tax treatment of a contribution to a 529 college savings plan?
A) Contributions are tax-deductible at the federal level, but not at the state level.
B) Contributions are tax-deductible at both the federal and state level.
C) Contributions are not tax-deductible, but earnings grow tax-free.
D) Contributions are both tax-deductible and the earnings are tax-free.
What is the tax treatment of employer-paid adoption assistance?
A) It is excluded from income, but only for the first $2,500 of expenses.
B) It is fully taxable to the employee.
C) It is excluded from income up to $15,000 per child.
D) It is excluded from income only if the adoption is for a special needs child.
Which of the following is NOT a characteristic of a C Corporation for tax purposes?
A) The corporation itself is taxed on its income.
B) Shareholders are taxed on dividends received.
C) The corporation is not subject to double taxation.
D) The corporation’s tax rate is separate from the individual tax rates of shareholders.
Which of the following tax credits is available to offset the tax liability for parents with qualifying children?
A) Child Tax Credit
B) Earned Income Tax Credit
C) Adoption Credit
D) American Opportunity Credit
Which of the following is a requirement for a business to qualify for the Section 199A Qualified Business Income (QBI) deduction?
A) The business must be a C Corporation.
B) The business must be a sole proprietorship, partnership, or S Corporation.
C) The business must provide services to individual clients.
D) The business must be engaged in real estate activities.
In 2024, what is the maximum amount of Social Security earnings subject to taxation?
A) $100,000
B) $160,000
C) $170,000
D) $160,200
Which of the following is an example of a tax-free exchange under Section 1031?
A) Exchange of stock for bonds
B) Exchange of real estate used in business for other business property
C) Exchange of a personal car for a new car
D) Exchange of services for property
What is the tax implication for a taxpayer who withdraws funds from a Health Savings Account (HSA) for a non-medical purpose before age 65?
A) The withdrawal is taxed as ordinary income, and a 10% penalty applies.
B) The withdrawal is taxed as ordinary income, but no penalty applies.
C) The withdrawal is tax-free and penalty-free.
D) The withdrawal is subject to a 10% penalty, but there is no tax.
Which of the following is true regarding the taxation of a spouse’s Social Security benefits?
A) Social Security benefits are always tax-free for both spouses.
B) Social Security benefits are taxed only if the taxpayer’s income exceeds $34,000 ($44,000 for married couples).
C) Social Security benefits are taxed based on the spouse’s total income, including tax-exempt interest.
D) Social Security benefits are subject to a flat 15% tax rate for all taxpayers.
A taxpayer who sells a primary residence is exempt from capital gains tax on up to $250,000 of gain ($500,000 for married couples) if the residence was owned and used as a primary residence for how long?
A) 6 months in the last 2 years
B) 1 year in the last 2 years
C) 2 years in the last 5 years
D) 3 years in the last 5 years
What is the maximum contribution limit for a 401(k) plan in 2024?
A) $18,000 for individuals under age 50
B) $19,000 for individuals under age 50
C) $22,500 for individuals under age 50
D) $25,000 for individuals under age 50
Which of the following tax documents must a taxpayer use to report self-employment income?
A) Form 1040
B) Form W-2
C) Form 1099-MISC
D) Schedule C (Form 1040)
Which of the following is NOT an example of an itemized deduction?
A) Mortgage interest on a primary residence
B) Charitable contributions
C) State income taxes
D) Standard deduction
For tax purposes, what is the primary difference between a sole proprietorship and a partnership?
A) A sole proprietorship has unlimited liability, while a partnership has limited liability.
B) A sole proprietorship is taxed separately from the owner, while a partnership is taxed as a corporation.
C) A sole proprietorship has one owner, while a partnership has two or more owners.
D) A sole proprietorship requires a written agreement, while a partnership does not.
What is the tax treatment of gifts made by a taxpayer during their lifetime?
A) Gifts are always taxable to the recipient.
B) Gifts are taxable to the donor if the total amount exceeds $15,000 per recipient in a year.
C) Gifts are taxable to the donor if the total amount exceeds $25,000 per recipient in a year.
D) Gifts are subject to income tax for both the donor and recipient.
A taxpayer who is a U.S. citizen and lives abroad may exclude up to how much of foreign earned income from U.S. taxation in 2024?
A) $50,000
B) $75,000
C) $100,000
D) $112,000
A taxpayer who sells their home and makes a gain of $350,000 can exclude how much of the gain if they meet all requirements for the primary residence exclusion?
A) $250,000 if single, $500,000 if married filing jointly
B) $350,000 if single, $500,000 if married filing jointly
C) $350,000 if married filing jointly, none if single
D) $250,000 if married filing jointly, $300,000 if single
Which of the following is a key tax advantage of investing in municipal bonds?
A) Interest income is exempt from federal income tax and state income tax if the bonds are issued in the taxpayer’s state of residence.
B) Interest income is exempt from federal income tax, but subject to state income tax.
C) Interest income is subject to federal income tax but exempt from state income tax.
D) Municipal bonds are exempt from all forms of taxation.
What is the maximum amount of annual contributions that can be made to a Health Savings Account (HSA) for an individual in 2024?
A) $3,850
B) $4,150
C) $6,850
D) $7,200
If a taxpayer receives a refund for state income taxes paid in a previous year, which of the following is true?
A) The taxpayer must always report the refund as income in the year it is received.
B) The refund may be taxable if the taxpayer itemized deductions in the previous year and received a tax benefit.
C) The refund is never taxable, regardless of whether the taxpayer itemized deductions in the prior year.
D) The refund is taxable only if the taxpayer is in a higher tax bracket in the year it is received.
Which of the following is true about the earned income tax credit (EITC)?
A) It is available only to taxpayers who file as married filing jointly.
B) It is a nonrefundable tax credit.
C) It is available to taxpayers who meet specific income thresholds and have qualifying children.
D) It is available only to low-income individuals without children.
What is the maximum tax-free gift amount that a taxpayer can give to any individual in 2024 without incurring gift tax?
A) $10,000
B) $15,000
C) $20,000
D) $17,500
For tax purposes, what is the primary difference between a traditional IRA and a Roth IRA?
A) Traditional IRA contributions are tax-free, while Roth IRA contributions are taxed.
B) Traditional IRA contributions are taxed, but Roth IRA withdrawals are tax-free.
C) Traditional IRA withdrawals are taxed as ordinary income, while Roth IRA withdrawals are tax-free if certain conditions are met.
D) Both types of IRAs have the same tax treatment.
What is the maximum contribution an employer can make to an employee’s 401(k) plan in 2024?
A) $22,500 for individuals under age 50
B) $19,500 for individuals under age 50
C) $66,000 in total employer and employee contributions for individuals under age 50
D) $22,500 for individuals under age 50 and $30,000 for individuals 50 and older
Which of the following is true about a traditional IRA?
A) Contributions are always tax-free, but withdrawals are taxed.
B) Contributions are tax-deductible, but withdrawals are taxable.
C) Contributions are taxable, but withdrawals are tax-free.
D) There are no tax advantages to contributing to a traditional IRA.
How does the IRS treat the income from a sale of a personal residence?
A) The income is always taxable as a capital gain.
B) The income is never taxable.
C) The income may be excluded from taxation if the taxpayer meets the ownership and use requirements.
D) The income is taxable as ordinary income.
Which of the following is true about a “Like-Kind Exchange” under Section 1031 of the Internal Revenue Code?
A) It only applies to real property exchanges, not personal property.
B) It applies to exchanges of stock in a corporation.
C) The exchange can be used to defer taxes on all types of capital gains.
D) The exchange must occur within one year of the sale of the original property.
What type of tax is a self-employed individual responsible for paying in addition to income tax?
A) Social Security and Medicare taxes (self-employment tax)
B) Estate tax
C) Gift tax
D) Sales tax
Which of the following is a requirement for a taxpayer to qualify for the Child Tax Credit in 2024?
A) The child must be under 18 years old at the end of the year.
B) The child must be a U.S. citizen or U.S. national.
C) The child must live with the taxpayer for at least half the year.
D) The child must be under 21 years old at the end of the year.
How is alimony treated for tax purposes under the Tax Cuts and Jobs Act (TCJA) for divorce agreements executed after December 31, 2018?
A) Alimony is taxable to the recipient and deductible for the payer.
B) Alimony is not taxable to the recipient and not deductible for the payer.
C) Alimony is taxable to the recipient but not deductible for the payer.
D) Alimony is not taxable to the recipient but deductible for the payer.
Which of the following tax credits is designed to help low-income workers?
A) Lifetime Learning Credit
B) Earned Income Tax Credit (EITC)
C) Child and Dependent Care Credit
D) American Opportunity Credit
In 2024, which of the following items is deductible as a medical expense for a taxpayer who itemizes deductions?
A) Non-prescription drugs
B) Cosmetic surgery
C) Long-term care insurance premiums
D) Health club memberships
Which of the following is true about the tax treatment of dividends?
A) Dividends are taxed as ordinary income, regardless of how long the taxpayer holds the stock.
B) Qualified dividends are taxed at a lower capital gains rate, while ordinary dividends are taxed as ordinary income.
C) Dividends are exempt from federal income tax if they are paid by a U.S. corporation.
D) Dividends are not subject to taxation if they are reinvested.
What is the tax treatment of a distribution from a Roth IRA?
A) Distributions are always taxable.
B) Distributions are taxable unless the account is less than 5 years old.
C) Distributions are tax-free if the account is at least 5 years old and the taxpayer is over 59½.
D) Distributions are subject to a 10% penalty and taxed as ordinary income.
What is the maximum amount of taxable income that is eligible for the standard deduction in 2024 for a single taxpayer?
A) $12,950
B) $13,850
C) $14,050
D) $15,000
Which of the following best describes the tax treatment of interest paid on student loans?
A) It is fully deductible, regardless of income level.
B) It is deductible up to $2,500, subject to income limitations.
C) It is tax-free if used for tuition and fees.
D) It is not deductible.
Which of the following is NOT a requirement for a taxpayer to claim the American Opportunity Tax Credit (AOTC)?
A) The student must be enrolled at least half-time in a program leading to a degree or certificate.
B) The student must be in their first four years of postsecondary education.
C) The taxpayer must be a U.S. citizen or eligible resident.
D) The student must have a minimum 2.0 GPA.
Which of the following is the primary purpose of estate planning?
A) To minimize the impact of inheritance tax.
B) To minimize the potential for paying state income taxes.
C) To ensure that assets are distributed according to the deceased person’s wishes.
D) To ensure the taxpayer avoids capital gains tax.
Which of the following is true about the tax treatment of retirement plan contributions for self-employed individuals?
A) Contributions to a traditional IRA are deductible, but distributions are taxable.
B) Contributions to a 401(k) plan are taxable in the year they are made.
C) Self-employed individuals cannot contribute to retirement plans.
D) Contributions to a SEP IRA are deductible, but distributions are taxable.
In 2024, which of the following is the maximum amount that a taxpayer can contribute to an HSA if they are 55 years old or older?
A) $3,850
B) $4,800
C) $7,300
D) $8,300
Which of the following is a characteristic of the child and dependent care credit?
A) It is a refundable credit.
B) The credit is based on the taxpayer’s income and the amount spent on child or dependent care services.
C) The credit can only be claimed for care provided to children under the age of 12.
D) It is limited to taxpayers who file as married filing jointly.
What is the maximum amount of contributions that can be made to a 529 college savings plan for a single taxpayer in 2024?
A) $5,000
B) $15,000
C) $75,000
D) There is no maximum contribution limit.
Which of the following best describes the tax treatment of capital gains for a taxpayer in the highest tax bracket?
A) Capital gains are taxed at the same rate as ordinary income.
B) Long-term capital gains are taxed at a lower rate than short-term capital gains.
C) Capital gains are exempt from tax for taxpayers in the highest bracket.
D) All capital gains are taxed at 15%.
Which of the following types of income is NOT subject to the 3.8% Net Investment Income Tax (NIIT)?
A) Dividends
B) Interest income
C) Rental income
D) Wages from employment
In 2024, which of the following is the maximum amount of the standard deduction for a married couple filing jointly?
A) $12,950
B) $13,850
C) $27,700
D) $24,800
Which of the following is true about the tax treatment of Social Security benefits?
A) Social Security benefits are always taxable.
B) Social Security benefits are never taxable.
C) Social Security benefits may be partially taxable depending on the taxpayer’s income.
D) Social Security benefits are taxed at the same rate as wages.
If a taxpayer has a net capital loss in 2024, what is the maximum amount they can deduct against other income?
A) $1,500
B) $3,000
C) $5,000
D) $10,000
Which of the following is true about tax-deferred annuities?
A) The annuity payments are tax-free when received.
B) The income from the annuity is taxed when earned, not when withdrawn.
C) The annuity payments are taxed at the taxpayer’s ordinary income tax rate when received.
D) The annuity is exempt from income tax.
Which of the following is true regarding the sale of a primary residence?
A) Any gain on the sale of a primary residence is taxable.
B) The taxpayer must use the home as their primary residence for at least 5 years to exclude the gain from taxation.
C) The taxpayer is not required to file a tax return if the sale resulted in a loss.
D) If the taxpayer sells the property at a loss, they can deduct the loss as a capital loss.
Which of the following is the most common tax treatment of a distribution from a traditional 401(k) plan?
A) Distributions are always tax-free.
B) Distributions are taxed as ordinary income in the year they are received.
C) Distributions are taxed as long-term capital gains.
D) Distributions are not taxed if the taxpayer is under 59½ years old.
For tax purposes, which of the following is true about alimony payments under agreements executed before December 31, 2018?
A) Alimony is not taxable to the recipient and is not deductible by the payer.
B) Alimony is taxable to the recipient and deductible by the payer.
C) Alimony is not taxable to the recipient, but deductible by the payer.
D) Alimony is taxed at a flat rate of 25%.
How is a taxpayer’s income taxed if they are a nonresident alien?
A) They are taxed on worldwide income at the same rates as U.S. citizens.
B) They are taxed only on U.S.-source income.
C) They are not subject to tax in the U.S.
D) They are taxed at a reduced rate on both U.S.-source and foreign-source income.
Which of the following is true about deductions for mortgage insurance premiums?
A) Mortgage insurance premiums are never deductible.
B) Mortgage insurance premiums are deductible if the taxpayer itemizes deductions.
C) Mortgage insurance premiums are deductible as an above-the-line deduction.
D) Mortgage insurance premiums are deductible for only the first five years.
What is the tax treatment of income from a U.S. partnership received by a foreign investor?
A) The income is subject to U.S. income tax, but a tax treaty may reduce the rate.
B) The income is not subject to U.S. income tax.
C) The income is taxed as dividend income.
D) The income is subject to U.S. tax but can be deferred indefinitely.
Which of the following is true about the taxability of an employee’s stock options?
A) Stock options are always taxed when granted, regardless of whether the option is exercised.
B) Stock options are taxable when exercised, not when granted.
C) Stock options are not taxable until the employee sells the shares.
D) Stock options are taxed at a flat rate of 15%.
What is the tax treatment of income received from a U.S. government bond?
A) The income is exempt from state and local taxes but subject to federal tax.
B) The income is fully exempt from federal income tax.
C) The income is subject to both federal and state income tax.
D) The income is not taxable at all.
Which of the following is true about the Child Tax Credit (CTC) for 2024?
A) The CTC is refundable up to $3,000 per child under the age of 17.
B) The CTC is nonrefundable and available only to low-income taxpayers.
C) The CTC is refundable and available to all taxpayers with children under the age of 18.
D) The CTC is partially refundable, with the maximum refund being $1,500 per child.
Which of the following is true about tax deductions for charitable contributions?
A) Charitable contributions are fully deductible without any restrictions.
B) The amount of deductible charitable contributions is limited to 60% of the taxpayer’s adjusted gross income.
C) Charitable contributions are deductible only if the taxpayer itemizes deductions.
D) Charitable contributions are deductible only for donations to religious organizations.
Which of the following is a requirement for a taxpayer to qualify for the earned income tax credit (EITC)?
A) The taxpayer must be at least 65 years old.
B) The taxpayer must file as single or head of household.
C) The taxpayer must have earned income from employment or self-employment.
D) The taxpayer must have no children.
What is the maximum contribution limit to a Roth IRA for a taxpayer under the age of 50 in 2024?
A) $3,000
B) $5,000
C) $6,000
D) $7,000
Which of the following is true about income from a qualified 401(k) plan?
A) Income from a 401(k) plan is always tax-free when withdrawn.
B) Income from a 401(k) plan is subject to a 10% penalty if withdrawn before the age of 59½, unless specific exceptions apply.
C) Income from a 401(k) plan is taxed at the capital gains rate.
D) Contributions to a 401(k) plan are subject to Social Security tax.
In 2024, the threshold for filing a tax return for a single individual under 65 is:
A) $10,000
B) $12,950
C) $25,000
D) $18,500
Which of the following is NOT a tax-exempt organization under IRS rules?
A) Religious organizations
B) Charitable organizations
C) Political parties
D) Educational organizations
A taxpayer who earns income from a foreign country may qualify for which of the following to avoid double taxation?
A) Foreign Tax Credit
B) Foreign Exclusion Credit
C) Foreign Investment Deduction
D) U.S. Tax Relief Program
Which of the following statements about tax credits is true?
A) Tax credits are applied after the taxpayer has calculated their tax liability.
B) Tax credits directly reduce taxable income.
C) Tax credits reduce the amount of tax liability dollar-for-dollar.
D) Tax credits are only available to low-income taxpayers.
What is the maximum contribution that can be made to a Health Savings Account (HSA) for a family in 2024?
A) $3,850
B) $7,300
C) $10,000
D) $9,500
Which of the following tax deductions is available only to taxpayers who itemize deductions?
A) Student loan interest deduction
B) Charitable contributions
C) Standard deduction
D) Child and dependent care expenses
Which of the following is a feature of tax-deferred income?
A) The income is taxed as ordinary income in the year it is earned.
B) The income is not taxed until it is withdrawn or distributed.
C) The income is subject to a flat tax rate when withdrawn.
D) The income is exempt from tax both when earned and when withdrawn.
What is the tax treatment of interest income earned from a municipal bond?
A) Municipal bond interest is subject to federal tax but exempt from state and local tax.
B) Municipal bond interest is fully taxable at the federal level.
C) Municipal bond interest is exempt from federal tax but may be subject to state and local tax.
D) Municipal bond interest is exempt from both federal and state taxes.
Which of the following is true about the taxability of prizes and awards?
A) Prizes and awards are always exempt from taxation.
B) Prizes and awards are taxable if they are won in a contest or game of chance.
C) Prizes and awards are exempt from taxation if the recipient does not cash the check.
D) Only prizes awarded for scientific achievements are taxable.
Which of the following statements regarding the tax treatment of Roth IRA distributions is correct?
A) Roth IRA distributions are always taxable.
B) Contributions to a Roth IRA are not tax-deductible, but qualified distributions are tax-free.
C) Distributions from a Roth IRA are taxable as ordinary income.
D) Distributions from a Roth IRA are taxed as capital gains.
Which of the following is an example of tax evasion?
A) Underreporting income on a tax return
B) Taking a tax credit for which the taxpayer is eligible
C) Claiming allowable business expenses
D) Deferring taxes through a retirement account
Which of the following expenses is deductible as a business expense for a self-employed individual?
A) Contributions to a traditional IRA
B) Commuting expenses from home to work
C) Cost of business-related travel
D) Home mortgage interest
Which of the following can a taxpayer use to reduce their taxable income, aside from tax credits?
A) Adjustments to income
B) Exclusions from income
C) Deductions from income
D) Refunds from previous years’ taxes
What is the tax treatment of scholarships and fellowships for degree candidates?
A) Scholarships are always taxable.
B) Scholarships and fellowships are tax-free if they are used for qualified education expenses.
C) Scholarships are not taxable if they are awarded to students who are employed by the school.
D) Scholarships are fully taxable for graduate students.
In 2024, which of the following taxpayers is eligible for the child tax credit (CTC)?
A) A taxpayer with a 14-year-old child who lives with them.
B) A taxpayer with a dependent who is 25 years old and a full-time student.
C) A taxpayer with no qualifying children.
D) A taxpayer who claims a nonresident alien child as a dependent.
Which of the following statements about deductions for medical expenses is true?
A) All medical expenses are deductible without limit.
B) Medical expenses are only deductible if they exceed 7.5% of adjusted gross income (AGI) in 2024.
C) Medical expenses are fully deductible if they exceed $2,000.
D) Medical expenses can be deducted regardless of the taxpayer’s AGI.
What is the maximum allowable contribution for a SIMPLE IRA for a self-employed individual in 2024?
A) $6,500
B) $13,000
C) $19,500
D) $23,000
Which of the following expenses can a taxpayer deduct as a business expense on Schedule C for a sole proprietorship?
A) Commuting costs to and from the primary place of employment
B) Health insurance premiums for the owner
C) Mortgage interest on the owner’s primary residence
D) Personal vehicle expenses for non-business-related travel
What is the primary purpose of the Alternative Minimum Tax (AMT)?
A) To ensure that high-income earners pay at least a minimum amount of tax
B) To encourage investment in tax-exempt bonds
C) To reduce taxes for middle-income earners
D) To eliminate the need for tax planning for wealthy individuals
Which of the following is an example of a tax-free fringe benefit for an employee?
A) Employer-paid health insurance premiums
B) Cash bonus
C) Company-provided car for personal use
D) Employer-paid commuting costs
How is interest income from a Series EE U.S. savings bond treated for tax purposes?
A) The interest is subject to federal income tax but not state tax.
B) The interest is exempt from both federal and state taxes.
C) The interest is tax-free if the bondholder is under 18 years old.
D) The interest is tax-deferred until the bond is redeemed or matures.
Which of the following types of income is generally NOT subject to self-employment tax?
A) Wages earned by an independent contractor
B) Income earned by a sole proprietor
C) Interest income earned from a savings account
D) Net earnings from self-employment
Which of the following business structures requires that its owners file separate personal tax returns, reporting their share of the business’s income or loss?
A) Sole proprietorship
B) Partnership
C) C corporation
D) S corporation
A taxpayer’s spouse died in 2024. What is the correct filing status for the taxpayer in the year of the spouse’s death?
A) Single
B) Married filing jointly
C) Head of household
D) Qualifying widow(er) with dependent child
Which of the following is NOT included in gross income for tax purposes?
A) Wages from employment
B) Interest from a savings account
C) Proceeds from life insurance death benefits
D) Rental income from property
Which of the following is the correct treatment for a taxpayer who participates in a qualified employer-sponsored retirement plan and also contributes to an individual retirement account (IRA)?
A) The taxpayer can only contribute to one retirement plan in total.
B) The taxpayer is ineligible for any IRA contributions.
C) The taxpayer may contribute to both the employer-sponsored plan and an IRA, but the IRA contribution may be limited.
D) The taxpayer must choose to contribute to either the employer-sponsored plan or the IRA, not both.
Which of the following taxpayers is eligible to deduct student loan interest?
A) A taxpayer who claims the student as a dependent
B) A taxpayer with an adjusted gross income (AGI) exceeding $150,000
C) A taxpayer whose filing status is married filing separately
D) A taxpayer who pays interest on a qualified student loan and meets income requirements
A taxpayer who works as a freelancer and operates a business from their home may qualify for which of the following tax deductions?
A) Home office deduction
B) Personal medical expenses
C) Mortgage insurance premiums
D) Personal vehicle expenses for commuting
Which of the following is a characteristic of tax-deferred retirement accounts?
A) Taxes are due on contributions made to the account.
B) Withdrawals from the account are tax-free if certain conditions are met.
C) Contributions to the account are made after-tax, but earnings grow tax-free.
D) Taxes are paid on earnings when withdrawn, but contributions are not taxed.
For a tax-exempt organization to maintain its tax-exempt status, it must generally avoid which of the following?
A) Engaging in political activities
B) Filing a Form 990 annually
C) Having a charitable purpose
D) Maintaining public support
Which of the following is generally considered a non-taxable fringe benefit for employees?
A) Employer-paid childcare expenses
B) Bonuses based on performance
C) Reimbursement for personal vehicle use
D) Employer-paid gym memberships
What is the main difference between a traditional IRA and a Roth IRA?
A) Roth IRA contributions are made with after-tax dollars, while traditional IRA contributions are tax-deferred.
B) Traditional IRA contributions are tax-free, while Roth IRA contributions are taxed.
C) Roth IRA withdrawals are subject to taxation, while traditional IRA withdrawals are not.
D) Traditional IRAs allow for higher contribution limits than Roth IRAs.
How are dividends received from a foreign corporation treated for tax purposes?
A) They are exempt from tax if the corporation is based in a U.S. territory.
B) They are taxed at the same rate as dividends received from domestic corporations.
C) They are subject to additional foreign tax credits or deductions to avoid double taxation.
D) They are not taxed by the IRS.
Which of the following is true about the standard deduction in 2024?
A) The standard deduction amount is the same for all taxpayers regardless of filing status.
B) The standard deduction is lower for married taxpayers filing jointly than for single taxpayers.
C) The standard deduction amount is based on filing status and is adjusted annually for inflation.
D) Taxpayers cannot claim the standard deduction if they are under 65.
What is the tax treatment of a gift made from one taxpayer to another?
A) The gift is taxable to the recipient.
B) The gift is taxable to the donor if the amount exceeds the annual exclusion limit.
C) The gift is always taxable to both the donor and recipient.
D) The gift is exempt from taxation regardless of the amount.
A taxpayer is required to make quarterly estimated tax payments if they expect to owe at least how much in taxes after subtracting withholding and refundable credits?
A) $100
B) $500
C) $1,000
D) $5,000
Which of the following is a valid tax deduction for business expenses related to travel?
A) Travel expenses for personal vacation trips
B) Travel expenses for commuting between home and a permanent work location
C) Travel expenses incurred for attending business meetings or conferences
D) Travel expenses for a business partner’s spouse
Which of the following is generally deductible as a medical expense for tax purposes?
A) Cosmetic surgery that improves appearance
B) Health club memberships for general fitness
C) Prescription medications
D) Over-the-counter medications
A taxpayer who is under 59½ years old withdraws funds from a traditional IRA. What is the typical penalty for this early distribution?
A) 5% of the distribution amount
B) 10% of the distribution amount
C) 20% of the distribution amount
D) 25% of the distribution amount
Which of the following is a common tax advantage of an S corporation?
A) S corporations pay taxes on their income at the corporate level.
B) Income and losses pass through to the shareholders, avoiding double taxation.
C) Shareholders can deduct business expenses personally without reporting the income.
D) S corporations are exempt from state income tax.
A taxpayer receives a gift of $50,000 from a parent in 2024. What is the gift tax liability for the parent?
A) The parent must pay gift tax on the entire $50,000 amount.
B) The parent is required to file a gift tax return, but no tax is due due to the annual exclusion.
C) The recipient must pay gift tax on the $50,000.
D) There is no gift tax return requirement or liability.
What is the tax treatment for a Roth IRA withdrawal if the taxpayer is over 59½ and the account has been open for at least 5 years?
A) The withdrawal is taxed as ordinary income.
B) The withdrawal is tax-free.
C) The withdrawal is taxed as capital gains.
D) The withdrawal is subject to a 10% penalty.
A taxpayer is entitled to a deduction for which of the following child-related expenses?
A) Daycare expenses while working
B) Payments made to a child’s college tuition
C) Personal gifts for the child
D) Child’s transportation to school
Which of the following tax credits is available for the care of dependents?
A) Child and Dependent Care Credit
B) Earned Income Credit
C) Child Tax Credit
D) American Opportunity Credit
Which of the following statements is true regarding tax treatment of long-term capital gains?
A) Long-term capital gains are taxed as ordinary income.
B) Long-term capital gains are subject to a higher tax rate than short-term capital gains.
C) Long-term capital gains are taxed at a lower rate than ordinary income for most taxpayers.
D) Long-term capital gains are not subject to tax.
Which of the following expenses is generally deductible for a self-employed individual?
A) Personal mortgage interest
B) Health insurance premiums for family members
C) Commuting expenses
D) Meals and entertainment for personal use
What is the maximum contribution limit for an individual to a traditional IRA in 2024 if they are under age 50?
A) $3,000
B) $5,500
C) $6,500
D) $7,000
Which of the following is considered a taxable event for tax reporting purposes?
A) The sale of a personal residence with no capital gain
B) The inheritance of property from a relative
C) The transfer of assets to a spouse in a divorce
D) The sale of stocks for a capital gain
Which of the following applies to a tax-deferred annuity?
A) Payments are taxed when received.
B) Contributions are tax-free, and earnings grow tax-free.
C) Contributions are tax-deductible, but earnings grow tax-deferred.
D) Payments are not subject to income tax.
What is the maximum amount that a taxpayer can deduct for charitable contributions made to qualified organizations in 2024 if they are filing as single?
A) $1,000
B) $5,000
C) $10,000
D) There is no limit, but deductions are subject to income limitations
What is the primary purpose of the Earned Income Tax Credit (EITC)?
A) To encourage saving for retirement
B) To assist low-income individuals and families with children
C) To reduce the tax liability for high-income earners
D) To promote the purchase of a primary residence
Which of the following income items would most likely be excluded from a taxpayer’s gross income for federal income tax purposes?
A) Salary from a job
B) Child support payments received
C) Rental income from an investment property
D) Interest earned on a savings account
What is the main tax advantage of investing in municipal bonds?
A) Municipal bond interest is exempt from federal income tax.
B) Municipal bond interest is taxed at a lower rate than corporate bond interest.
C) Municipal bonds are exempt from state income tax.
D) Municipal bond interest is tax-deferred.
Which of the following is a tax consequence of a distribution from an IRA that does not meet the IRS requirements for a qualified distribution?
A) The distribution is exempt from tax and penalties.
B) The distribution is subject to ordinary income tax and may be subject to an early withdrawal penalty.
C) The distribution is tax-free if used for educational purposes.
D) The distribution is subject to a 10% penalty but not ordinary income tax.
A taxpayer wishes to claim a credit for child and dependent care expenses. Which of the following conditions must be met?
A) The taxpayer must itemize deductions.
B) The taxpayer must have earned income from employment or self-employment.
C) The child must be over 18 years old.
D) The care provider must be a relative.
What is the tax treatment of income from a qualified business income (QBI) deduction under Section 199A?
A) The income is excluded from gross income.
B) The income is subject to a reduced tax rate.
C) The income is eligible for a deduction up to 20% of the qualified income.
D) The income is taxed at ordinary income rates.
Which of the following is NOT considered a taxable event for purposes of the gift tax?
A) Giving property to a child
B) Transferring property to a spouse
C) Donating to a charity
D) Transferring real estate to a friend
Which of the following is true regarding tax treatment of alimony payments for divorces finalized after December 31, 2018?
A) Alimony payments are deductible by the payer and includable in the income of the recipient.
B) Alimony payments are deductible by the payer but are not includable in the income of the recipient.
C) Alimony payments are not deductible by the payer and not includable in the income of the recipient.
D) Alimony payments are deductible by the payer and includable in the income of the recipient.
What is the maximum contribution limit for a 401(k) retirement plan in 2024 for an individual under age 50?
A) $15,000
B) $19,500
C) $22,500
D) $26,000
A taxpayer is selling an investment property that has appreciated in value. The property was held for more than one year. What is the tax treatment of the gain?
A) The gain is taxed as short-term capital gain.
B) The gain is taxed as ordinary income.
C) The gain is taxed as long-term capital gain, subject to preferential tax rates.
D) The gain is not taxed if the property is reinvested.
Which of the following is NOT a requirement for an individual to qualify for the Child Tax Credit?
A) The child must be under 17 years old at the end of the year.
B) The child must be a U.S. citizen, national, or resident.
C) The child must not have a valid Social Security number.
D) The taxpayer must claim the child as a dependent.
Which of the following types of income is subject to self-employment tax?
A) Wages from an employer
B) Dividend income
C) Rental income from a property
D) Net earnings from a sole proprietorship
What is the tax treatment of income from a tax-deferred annuity?
A) Contributions to the annuity are tax-free, and the income is taxed when received.
B) Contributions are taxable, but income grows tax-free.
C) Income grows tax-deferred and is taxed when received.
D) Contributions are tax-free, and income grows tax-free.
Which of the following is an example of income that is tax-exempt?
A) Interest income from municipal bonds
B) Salary income from a full-time job
C) Interest income from a corporate bond
D) Capital gain from the sale of stock
Which of the following statements about the taxation of Social Security benefits is correct?
A) Social Security benefits are always tax-free.
B) Social Security benefits are taxable only if the taxpayer’s income exceeds a certain threshold.
C) Social Security benefits are always taxable, regardless of income.
D) Social Security benefits are taxed at a flat 10% rate.
What is the effect of a taxpayer’s adoption of a tax shelter on their tax return?
A) The tax shelter provides an immediate tax credit.
B) The tax shelter allows for immediate deductions or tax deferrals.
C) The tax shelter reduces the taxpayer’s tax liability without any long-term effects.
D) The tax shelter increases the taxpayer’s liability.
A taxpayer has a net operating loss (NOL) in 2024. Which of the following statements is true regarding the tax treatment of an NOL under current law?
A) The NOL can only be carried forward and offset against future income.
B) The NOL can be carried back to offset past income.
C) The NOL can be carried both back and forward.
D) The NOL can be carried forward for up to 20 years or carried back up to 2 years.
Which of the following types of income is typically subject to backup withholding?
A) Wages
B) Social Security benefits
C) Interest income from a bank account
D) Dividend income from stocks
A taxpayer receives $10,000 in alimony payments in 2024. What is the tax treatment of this alimony payment for the recipient?
A) The recipient must include the $10,000 in gross income.
B) The recipient must exclude the $10,000 from gross income.
C) The recipient can exclude the $10,000 from income if they are under 65.
D) The recipient must pay a special tax rate on the alimony.
What is the tax treatment of employee stock options that are granted as part of an employee’s compensation package?
A) They are immediately taxable when granted.
B) They are taxable when exercised.
C) They are taxable when the stock is sold.
D) They are taxable when the options expire.
A taxpayer’s income exceeds the phase-out threshold for the Child Tax Credit. Which of the following is true?
A) The taxpayer can still claim the full amount of the credit.
B) The taxpayer cannot claim the Child Tax Credit.
C) The taxpayer’s credit is reduced according to a phase-out schedule.
D) The taxpayer can claim the credit, but only if the child is under 5 years old.
What is the maximum amount a taxpayer can deduct for mortgage insurance premiums in 2024, assuming they qualify?
A) $500
B) $1,000
C) $2,000
D) The amount is phased out depending on income level.
Which of the following would likely be considered an adjustment to gross income for an individual taxpayer?
A) Charitable contributions
B) Mortgage interest
C) Student loan interest
D) Childcare expenses
What is the tax treatment for interest income received from a savings bond?
A) Interest is always tax-free.
B) Interest is taxed at the state level but not at the federal level.
C) Interest is subject to federal income tax when the bond is redeemed.
D) Interest is deferred until the bond matures.
What is the maximum amount that can be contributed to a Health Savings Account (HSA) in 2024 for an individual with family coverage?
A) $3,600
B) $7,000
C) $10,000
D) $6,000
Which of the following is NOT considered a tax preference item for purposes of the alternative minimum tax (AMT)?
A) Depreciation on property placed in service before 1987
B) Interest on private activity municipal bonds
C) Income from incentive stock options exercised
D) Qualified business income deduction
A taxpayer elects to claim a deduction for state and local income taxes paid. Which of the following is true?
A) The taxpayer can deduct all state and local income taxes paid without limitation.
B) The taxpayer can deduct up to $10,000 in state and local income taxes paid.
C) The deduction is limited to $5,000 for married taxpayers filing jointly.
D) The deduction for state and local income taxes is eliminated.
Which of the following types of income is subject to self-employment tax?
A) Wages from a regular job
B) Income from a part-time business
C) Interest income from a savings account
D) Dividends from stocks
Which of the following statements about the tax treatment of capital gains is true?
A) Short-term capital gains are taxed at a higher rate than long-term capital gains.
B) Long-term capital gains are taxed at a higher rate than short-term capital gains.
C) Capital gains are not taxed if the gain is less than $5,000.
D) Capital gains are taxed at the same rate as ordinary income.
What is the maximum contribution limit to a traditional IRA in 2024 for an individual under age 50?
A) $3,000
B) $5,500
C) $6,500
D) $7,000
A taxpayer received a $20,000 prize from a lottery. Which of the following statements is true regarding the taxation of the prize?
A) The prize is not taxable.
B) The prize is taxable as ordinary income.
C) The prize is taxed at a lower rate for individuals under 65.
D) The prize is tax-exempt for U.S. citizens.
Which of the following types of income is NOT subject to federal income tax?
A) Interest income from U.S. Treasury bonds
B) Wages earned from an employer
C) Dividends from corporate stocks
D) Rental income from real estate
What is the main purpose of tax credits?
A) To reduce taxable income
B) To reduce the amount of tax owed directly
C) To increase the tax liability
D) To defer taxes until a later year
Which of the following is a requirement to qualify for the Earned Income Tax Credit (EITC)?
A) The taxpayer must be at least 65 years old.
B) The taxpayer must have qualifying children under the age of 21.
C) The taxpayer must have earned income below a certain threshold.
D) The taxpayer must have a net worth below $1 million.
Which of the following items is deductible as an itemized deduction?
A) Casualty loss on personal property
B) Childcare expenses
C) Charitable contributions
D) Health insurance premiums paid by an employer
Which of the following is true about the tax treatment of income from rental properties?
A) Rental income is always subject to a flat tax rate of 25%.
B) Rental income is considered passive income and subject to self-employment tax.
C) Rental income is subject to regular income tax rates, but some expenses may be deducted.
D) Rental income is exempt from income tax if the taxpayer rents out the property for fewer than 10 days per year.
What is the tax treatment for interest income received from a municipal bond?
A) Interest income is taxable at the federal level but not at the state level.
B) Interest income is tax-exempt at both the federal and state levels.
C) Interest income is tax-exempt at the federal level but may be taxable at the state level.
D) Interest income is taxable at both the federal and state levels.
Which of the following taxpayers is eligible to use the Head of Household filing status?
A) A married individual living with their spouse and children.
B) An individual who is unmarried and provides more than half of the support for a dependent child.
C) A divorced taxpayer with no children.
D) A single individual who lives with a roommate.
What is the maximum amount of the American Opportunity Tax Credit (AOTC) available per student in 2024?
A) $1,000
B) $2,500
C) $3,500
D) $5,000
Which of the following tax credits is refundable?
A) Child Tax Credit
B) Earned Income Tax Credit (EITC)
C) Education Credit
D) Adoption Credit
Which of the following is NOT a common requirement to qualify for the Saver’s Credit?
A) The taxpayer must be 65 years of age or older.
B) The taxpayer must contribute to a retirement plan.
C) The taxpayer’s income must fall below a specified threshold.
D) The taxpayer must be filing jointly or as head of household.
What is the primary purpose of the Foreign Earned Income Exclusion?
A) To allow U.S. taxpayers living abroad to exclude foreign interest income.
B) To allow U.S. taxpayers living abroad to exclude a portion of their foreign-earned income from taxation.
C) To allow foreign corporations to exclude U.S.-sourced income from taxation.
D) To provide a credit for foreign income taxes paid.
What is the tax treatment for dividends received from qualified domestic corporations?
A) They are taxed at ordinary income tax rates.
B) They are tax-exempt.
C) They are taxed at long-term capital gains rates.
D) They are taxed at a reduced tax rate.
How much of the student loan interest paid in 2024 can be deducted by a taxpayer?
A) Up to $500
B) Up to $1,000
C) Up to $2,500
D) No deduction is allowed
Which of the following retirement plans does NOT require minimum distributions once the taxpayer reaches age 72?
A) Traditional IRA
B) Roth IRA
C) 401(k)
D) 403(b)
What is the tax treatment of a taxpayer’s primary residence sale if the taxpayer meets the ownership and use tests and the gain is under the exclusion limit?
A) The gain is always taxable, but at a lower rate.
B) The gain is excluded from tax up to $250,000 for single filers and $500,000 for married couples.
C) The gain is subject to ordinary income tax rates.
D) The gain is taxable as a capital gain.
What is the maximum contribution limit for a Roth IRA in 2024 for an individual under age 50?
A) $5,500
B) $6,000
C) $7,000
D) $6,500
Which of the following items is eligible for the Child and Dependent Care Credit?
A) Tuition fees paid for a child’s private school
B) Childcare expenses for a child under 13
C) Medical expenses for a dependent relative
D) Home improvement costs related to caring for a dependent
Which of the following best describes the purpose of a tax deduction?
A) To reduce the taxable income of a taxpayer
B) To reduce the tax owed directly
C) To eliminate the need for tax reporting
D) To exclude income from tax liability
In which of the following cases can a taxpayer take a tax deduction for medical expenses?
A) If medical expenses exceed 5% of their adjusted gross income (AGI)
B) If medical expenses exceed 7.5% of their AGI for the year
C) If medical expenses exceed $1,000
D) If medical expenses exceed the standard deduction amount
Which of the following taxpayers is eligible for the Adoption Credit?
A) A taxpayer who adopts a foreign child and incurs adoption-related expenses
B) A taxpayer who adopts a relative without incurring any expenses
C) A taxpayer who adopts a child over the age of 18
D) A taxpayer who adopts a child from a non-profit organization
Which of the following is an example of passive income for tax purposes?
A) Rental income from real estate
B) Salary from a full-time job
C) Interest income from bonds
D) Dividends from stock investments
What is the tax treatment of an employer-sponsored health insurance premium?
A) The premiums are included in the employee’s taxable income
B) The premiums are deducted from the employee’s paycheck but not taxed
C) The premiums are considered a taxable fringe benefit
D) The premiums are not subject to tax
How much is the standard deduction for a single filer in 2024?
A) $8,800
B) $12,950
C) $18,200
D) $24,800
What is the maximum amount of Social Security tax that can be applied to a taxpayer’s income in 2024?
A) $7,240
B) $9,000
C) $10,360
D) $10,800
What is the primary difference between a traditional IRA and a Roth IRA in terms of tax treatment?
A) Traditional IRA contributions are tax-free, while Roth IRA withdrawals are tax-free
B) Roth IRA contributions are tax-deductible, while traditional IRA withdrawals are taxed
C) Traditional IRA contributions are tax-deductible, and Roth IRA withdrawals are tax-free
D) Roth IRA contributions are tax-deductible, while traditional IRA withdrawals are tax-free
What is the income threshold for a taxpayer to qualify for the Premium Tax Credit in 2024?
A) The taxpayer must earn between 100% and 400% of the federal poverty level
B) The taxpayer must earn below the federal poverty level
C) The taxpayer must earn above 400% of the federal poverty level
D) The taxpayer must earn between 150% and 300% of the federal poverty level
Which of the following best describes a tax-exempt bond?
A) A bond whose interest income is taxable by both federal and state governments
B) A bond whose interest income is only taxable at the state level
C) A bond whose interest income is taxable by the federal government but exempt at the state level
D) A bond whose interest income is exempt from both federal and state taxation
What is the primary purpose of a tax-deferred retirement account like a 401(k)?
A) To allow taxpayers to make tax-free withdrawals when they retire
B) To defer taxes on the contributions until retirement
C) To allow taxpayers to deduct any withdrawals made during the year
D) To exclude the earnings from tax during the retirement period
Which of the following is a condition for a taxpayer to qualify for the Lifetime Learning Credit?
A) The taxpayer must be enrolled in a degree program
B) The taxpayer must have taxable income under $100,000
C) The taxpayer must incur education expenses for courses that improve their job skills
D) The taxpayer must be under 25 years of age
Which of the following is a requirement for a taxpayer to claim the Dependent Care Flexible Spending Account (FSA) deduction?
A) The taxpayer must use the funds for medical expenses only
B) The taxpayer must have a child under age 18
C) The taxpayer must use the funds to pay for childcare expenses
D) The taxpayer must be self-employed
Which of the following is considered “earned income” for purposes of claiming the Earned Income Tax Credit (EITC)?
A) Interest income from savings accounts
B) Wages and salary from a job
C) Capital gains from stock investments
D) Pension income from a retirement plan
What is the tax treatment of alimony payments under the tax law effective for divorce decrees after December 31, 2018?
A) Alimony payments are taxable to the recipient and deductible by the payer
B) Alimony payments are taxable to the recipient but not deductible by the payer
C) Alimony payments are neither taxable nor deductible
D) Alimony payments are deductible by the recipient and taxable to the payer
What is the general rule for deducting business expenses for a self-employed individual?
A) All business expenses can be deducted if they are deemed necessary and ordinary
B) Only direct expenses, such as materials purchased, can be deducted
C) Expenses for office supplies can be deducted but not for travel
D) Only indirect expenses like advertising can be deducted
Which of the following is considered a qualified educational expense for the American Opportunity Tax Credit?
A) Room and board
B) Transportation costs
C) Tuition and required fees
D) Health insurance premiums
How is income from the sale of a primary residence treated for tax purposes?
A) The entire gain is taxable.
B) The gain is taxable unless the home was sold for a loss.
C) The gain can be excluded if the taxpayer meets certain ownership and use requirements.
D) The gain is always tax-exempt.
What is the maximum amount of the Child Tax Credit that can be claimed for each qualifying child in 2024?
A) $1,000
B) $2,000
C) $2,500
D) $3,000
What is the tax treatment of a Qualified Tuition Program (529 Plan)?
A) Contributions are tax-deductible at the federal level
B) Earnings grow tax-deferred, and withdrawals for qualified education expenses are tax-free
C) Contributions are taxable at the federal level
D) Earnings are subject to federal income tax upon withdrawal
Which of the following expenses is NOT deductible as part of business startup costs?
A) Market research
B) Interest on business loans
C) Advertising costs before business opens
D) Salaries for employees hired before the business opens
Which of the following tax credits is specifically designed for low-income workers?
A) Child and Dependent Care Credit
B) Earned Income Tax Credit (EITC)
C) Lifetime Learning Credit
D) American Opportunity Tax Credit
Which of the following situations would trigger a requirement to file an amended tax return (Form 1040X)?
A) Receiving a tax refund after filing a tax return
B) Discovering an error or omission on a tax return that affects the taxpayer’s tax liability
C) Requesting an extension to file a return
D) Filing a late return after the tax deadline
What is the purpose of Form 8862, “Information to Claim Earned Income Credit after Disallowance”?
A) To claim an additional amount of EITC after an audit
B) To reinstate eligibility for the EITC after it has been disallowed in a prior year
C) To calculate the amount of EITC for a dependent
D) To provide proof of income for EITC qualification
In a partnership, which of the following is the correct tax treatment of a partner’s guaranteed payment for services?
A) Guaranteed payments are not taxable to the partner but reduce the partnership’s taxable income.
B) Guaranteed payments are taxable to the partner and deductible by the partnership.
C) Guaranteed payments are not taxable to the partner and not deductible by the partnership.
D) Guaranteed payments are taxable to the partnership but not to the partner.
Which of the following is NOT considered an itemized deduction on Schedule A of Form 1040?
A) Medical expenses that exceed 7.5% of adjusted gross income
B) State and local income taxes
C) Mortgage insurance premiums
D) Charitable contributions
What is the maximum tax rate on long-term capital gains for a taxpayer in the 39.6% tax bracket in 2024?
A) 0%
B) 10%
C) 15%
D) 20%
In which of the following cases would a taxpayer be able to exclude up to $250,000 ($500,000 for married couples) of gain from the sale of their home?
A) The taxpayer has lived in the home for at least 2 years of the past 5 years.
B) The home was rented out for 3 years prior to sale.
C) The taxpayer has a gain of less than $1,000,000 from the sale.
D) The taxpayer sells a second home as their primary residence.
Which of the following credits is available for both undergraduate and graduate education expenses?
A) American Opportunity Tax Credit
B) Lifetime Learning Credit
C) Child and Dependent Care Credit
D) Earned Income Tax Credit
How is a nonqualified distribution from a Roth IRA treated for tax purposes?
A) The entire distribution is tax-free.
B) The earnings are taxed, but the contributions are not.
C) The distribution is subject to a penalty, but the contributions are not taxed.
D) The entire distribution is taxable, including contributions and earnings.
What is the maximum amount a taxpayer can contribute to a Health Savings Account (HSA) in 2024?
A) $3,650 for individual coverage, $7,300 for family coverage
B) $4,200 for individual coverage, $8,400 for family coverage
C) $5,000 for individual coverage, $10,000 for family coverage
D) $6,500 for individual coverage, $13,000 for family coverage
How does the IRS treat a taxpayer’s expenses related to the maintenance of a home office?
A) Home office expenses are never deductible.
B) Home office expenses are fully deductible, regardless of income.
C) Home office expenses are deductible if the space is used regularly and exclusively for business.
D) Home office expenses are deductible only if the taxpayer is a self-employed individual.
Which of the following statements regarding the Net Investment Income Tax (NIIT) is TRUE?
A) The NIIT applies only to investment income from rental properties.
B) The NIIT applies to net investment income for taxpayers with income above $200,000 ($250,000 for married couples).
C) The NIIT applies only to capital gains income, not dividends or interest.
D) The NIIT is a flat rate tax on all income, regardless of type.
When can a taxpayer withdraw funds from a 401(k) plan without paying a penalty?
A) At any time after reaching age 59 ½
B) Only after reaching age 65
C) At age 50, but only if the withdrawal is for medical expenses
D) At any time, but only if the withdrawal is for education costs
What is the primary reason a taxpayer would choose a “traditional” IRA over a Roth IRA?
A) To pay taxes on the withdrawals instead of on the contributions
B) To avoid paying taxes on the earnings at retirement
C) To make tax-deductible contributions in the current year
D) To make tax-free withdrawals in retirement
What is the tax treatment of Social Security benefits for a taxpayer whose provisional income is $40,000?
A) The benefits are always tax-free.
B) The benefits are taxable up to 85%, depending on income.
C) The benefits are taxable up to 50%, depending on income.
D) The benefits are taxable at the full 39.6% rate.
What is the standard deduction amount for a married couple filing jointly in 2024?
A) $12,950
B) $18,200
C) $24,800
D) $25,000
Which of the following is considered a “passive loss” for tax purposes?
A) Losses from rental property in which the taxpayer actively participates
B) Losses from investments in a business where the taxpayer is an active participant
C) Losses from rental property in which the taxpayer does not materially participate
D) Losses from the sale of stock held for more than one year
How is the tax treatment of employee stock options generally determined?
A) Stock options are taxed at the time of purchase.
B) Stock options are taxed when exercised and the spread is included in income.
C) Stock options are taxed only when they are sold.
D) Stock options are tax-free for employees.
Which of the following items is NOT deductible as a medical expense?
A) Health insurance premiums
B) Cosmetic surgery that is medically necessary
C) Over-the-counter medication
D) Prescription drugs
Which of the following tax forms is used by taxpayers to report their capital gains and losses from the sale of securities?
A) Form 1040
B) Form 1065
C) Schedule D
D) Form 8889
What is the maximum contribution limit to an individual’s Roth IRA for the 2024 tax year if the taxpayer is under age 50?
A) $5,000
B) $6,000
C) $7,500
D) $12,000
How is alimony treated for tax purposes if the divorce agreement was finalized before January 1, 2019?
A) Alimony payments are taxable to the recipient and deductible by the payer.
B) Alimony payments are tax-free to the recipient and not deductible by the payer.
C) Alimony payments are deductible by the recipient and taxable to the payer.
D) Alimony payments are neither taxable nor deductible for either party.
Which of the following is NOT a characteristic of a sole proprietorship?
A) It is not a separate legal entity.
B) The owner reports business income and expenses on their personal tax return.
C) The owner is personally liable for the business’s debts.
D) The business has limited liability.
Which of the following types of income is exempt from federal income tax?
A) Interest from municipal bonds
B) Interest from corporate bonds
C) Salary from a government job
D) Dividend income from stocks
What is the standard deduction for a single taxpayer in 2024?
A) $12,550
B) $13,850
C) $18,800
D) $24,800
What is the tax rate for long-term capital gains in the 2024 tax year for a taxpayer in the highest income bracket?
A) 0%
B) 15%
C) 20%
D) 39.6%
Which of the following credits is available for taxpayers who are parents of dependent children under the age of 17?
A) Child and Dependent Care Credit
B) Child Tax Credit
C) Adoption Credit
D) Lifetime Learning Credit
If a taxpayer is audited and it is found that they owe additional taxes, what is the most likely consequence of underreporting their income?
A) The taxpayer will automatically be charged a penalty.
B) The taxpayer will be required to pay the additional tax, but there is no penalty.
C) The taxpayer will be charged a penalty for underreporting, plus interest.
D) The taxpayer will not be required to pay additional taxes if the error was unintentional.
In which of the following situations would a taxpayer be able to deduct the costs of meals and entertainment?
A) Meals and entertainment expenses for a business trip
B) Meals for a social event
C) Entertainment expenses unrelated to business activities
D) Meals provided to family members during business travel
Which of the following tax strategies is most appropriate for minimizing tax liability when withdrawing funds from a traditional IRA?
A) Withdraw all funds before age 59½ to avoid early withdrawal penalties.
B) Withdraw funds gradually to spread tax liability over several years.
C) Convert the IRA to a Roth IRA to avoid future taxes.
D) Take a lump sum distribution to pay taxes in one year.
Which of the following is true about the Affordable Care Act (ACA) premium tax credit?
A) It is available to all taxpayers regardless of income.
B) It is available to low- and moderate-income individuals who purchase health insurance through the marketplace.
C) It is only available to individuals who do not have employer-sponsored insurance.
D) It is a credit that can be used to reduce a taxpayer’s federal tax liability.
How does a taxpayer avoid the 10% early withdrawal penalty on an IRA distribution if the taxpayer is under age 59½?
A) Use the distribution for home purchase or education expenses.
B) Take a distribution as a loan from the IRA.
C) Withdraw the funds gradually in small amounts.
D) Withdraw the funds only for retirement purposes.
Which of the following tax provisions allows taxpayers to reduce their taxable income by up to $10,000 for contributions to a retirement plan?
A) Roth IRA
B) Traditional IRA
C) Health Savings Account
D) 401(k) Plan
When can a taxpayer claim a deduction for charitable contributions?
A) The contributions must be made to a government organization.
B) The contributions must be made to a recognized charitable organization.
C) The contributions must be made to a church or religious group.
D) The taxpayer must receive a benefit in return for the contribution.
Which of the following expenses can be deducted by a taxpayer who is self-employed?
A) Contributions to a traditional IRA
B) Personal groceries
C) Expenses related to business use of a home
D) Commuting expenses
How are dividends from qualified corporate stock treated for tax purposes?
A) They are taxed as ordinary income at the taxpayer’s tax rate.
B) They are taxed at a maximum rate of 20%.
C) They are tax-free to the shareholder.
D) They are taxed at a reduced rate depending on the taxpayer’s tax bracket.
What is the tax treatment of a tax-exempt bond?
A) The interest income from a tax-exempt bond is not subject to federal income tax.
B) The interest income from a tax-exempt bond is subject to federal income tax, but not state tax.
C) The interest income is fully taxable.
D) The bond’s principal is subject to tax, but the interest income is tax-free.
What tax form is used by self-employed individuals to report their business income and expenses?
A) Schedule A
B) Schedule C
C) Schedule D
D) Schedule SE
Which of the following is considered a tax-deferred retirement plan?
A) Roth IRA
B) 401(k)
C) Health Savings Account
D) Education Savings Account
What is the primary purpose of the Alternative Minimum Tax (AMT)?
A) To provide additional tax credits to low-income earners
B) To ensure that high-income earners pay at least a minimum amount of tax
C) To provide tax relief to the middle class
D) To allow tax deductions for specific business expenses
What is the tax treatment of income from a partnership?
A) The partnership pays taxes on its income, and partners report their share of income on their individual tax returns.
B) The partnership itself is not taxed, and partners do not report their share of income.
C) Partners are taxed at the entity level, not individually.
D) The partnership is taxed on all of its income, and the partners pay taxes on dividends received from the partnership.
What is the maximum tax rate for qualified dividends in 2024 for taxpayers in the highest tax bracket?
A) 0%
B) 10%
C) 15%
D) 20%
Which of the following is a requirement for an expense to be deductible as a business expense?
A) The expense must be necessary and ordinary for the business.
B) The expense must be directly related to the personal use of the taxpayer.
C) The expense must be incurred in the first quarter of the business year.
D) The expense must be at least $1,000.
Which of the following tax benefits is available for higher education expenses?
A) Lifetime Learning Credit
B) Adoption Credit
C) Child Tax Credit
D) Earned Income Tax Credit
When is an individual required to pay the 3.8% Net Investment Income Tax (NIIT)?
A) If the taxpayer has income from rental properties
B) If the taxpayer’s modified adjusted gross income exceeds the applicable threshold
C) If the taxpayer has more than $250,000 in wages
D) If the taxpayer owns more than 10% of an S corporation
What is the purpose of a 1031 exchange for tax purposes?
A) To defer taxes on the sale of a primary residence
B) To allow taxpayers to defer taxes on gains from the sale of certain types of property
C) To reduce the taxable income of the seller immediately
D) To eliminate the need to report capital gains
In which of the following situations would a taxpayer be eligible for the earned income tax credit (EITC)?
A) The taxpayer has a high income and no children.
B) The taxpayer has low to moderate income and one or more qualifying children.
C) The taxpayer earns investment income above $10,000.
D) The taxpayer is self-employed with net earnings over $50,000.
What is the tax treatment of contributions to a Health Savings Account (HSA)?
A) Contributions are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
B) Contributions are taxable, and withdrawals are tax-free.
C) Contributions are tax-free, but withdrawals are subject to tax.
D) Contributions are non-deductible, and withdrawals are taxable.
Which of the following is a common item that is not eligible for a tax deduction when calculating self-employment taxes?
A) Business use of home
B) Health insurance premiums
C) Commuting expenses
D) Office supplies
How is a taxpayer’s taxable income calculated for tax purposes?
A) By adding up all income sources and subtracting any deductions or credits
B) By subtracting the standard deduction or itemized deductions from gross income
C) By multiplying the gross income by the applicable tax rate
D) By subtracting the tax-exempt income from gross income
What is the tax treatment of income from a tax-deferred annuity?
A) The income is taxed as ordinary income when it is received.
B) The income is tax-free.
C) The income is taxed at the capital gains rate.
D) The income is taxed as dividend income.
What is the filing deadline for an individual tax return for the year 2024?
A) April 15, 2025
B) May 1, 2025
C) March 15, 2025
D) April 1, 2025
Which of the following describes a tax credit that reduces tax liability dollar-for-dollar?
A) Deduction
B) Exemption
C) Refundable credit
D) Nonrefundable credit
Which of the following types of income is generally not subject to self-employment tax?
A) Earnings from a sole proprietorship
B) Income from a partnership
C) Wages earned as an employee
D) Income from rental properties
What is the purpose of an estate tax?
A) To tax the income generated by a deceased person’s estate
B) To impose a tax on the transfer of a deceased person’s property to heirs
C) To tax the sale of real estate after a person’s death
D) To tax income earned from the sale of stocks and bonds
What is the tax treatment of a cash distribution from a corporation to its shareholders?
A) The distribution is taxed as dividend income.
B) The distribution is tax-free to the shareholders.
C) The distribution is taxed at the ordinary income tax rate.
D) The distribution is treated as a capital gain.
How does a taxpayer qualify for the Child Tax Credit?
A) The child must be under 18 years old and live with the taxpayer for more than half the year.
B) The child must be a full-time student under 24 years old.
C) The child must be under 16 years old and have earned income.
D) The child must be a U.S. citizen, national, or resident alien and be under 18 years old.
What is the purpose of the Foreign Earned Income Exclusion?
A) To allow U.S. taxpayers working abroad to exclude foreign-source income from U.S. taxation
B) To provide a tax credit for foreign taxes paid
C) To eliminate tax on income earned by foreign businesses
D) To reduce the tax rate on foreign dividends
Which of the following tax deductions is available for taxpayers who itemize their deductions?
A) Standard deduction
B) Property taxes
C) Child tax credit
D) Earned income tax credit
How are rental property losses treated for tax purposes?
A) They are always deductible as business expenses.
B) They are deducted against other income only if the taxpayer qualifies as a real estate professional.
C) They are not deductible under any circumstances.
D) They are fully deductible for all taxpayers.
What is the maximum annual contribution limit for a traditional IRA in 2024 for an individual under age 50?
A) $5,500
B) $6,000
C) $7,500
D) $8,000
What is the definition of “capital gains” for tax purposes?
A) Income earned from wages and salaries
B) Income from the sale of assets like stocks, bonds, and real estate
C) Rental income from investment properties
D) Income from self-employment activities
Which of the following tax credits is available for taxpayers with dependent children?
A) Earned Income Tax Credit
B) Lifetime Learning Credit
C) Child and Dependent Care Credit
D) Foreign Tax Credit
In 2024, what is the maximum allowable contribution to a 401(k) plan for an individual under the age of 50?
A) $18,000
B) $22,500
C) $23,000
D) $26,000
Which of the following best describes a tax-exempt organization?
A) It is an organization that is not subject to income tax under the Internal Revenue Code.
B) It is an organization that can deduct all business expenses from taxable income.
C) It is an organization that pays no tax on earnings regardless of income type.
D) It is an organization that receives all of its funding from the government.
What is the purpose of a charitable contribution deduction?
A) To reduce the amount of taxes owed by a corporation for making donations
B) To reduce taxable income by donating property or money to qualifying charities
C) To provide tax credits for taxpayers with large estates
D) To allow individuals to avoid income tax on their wages
How is a Roth IRA different from a traditional IRA?
A) Roth IRA contributions are tax-deductible, while traditional IRA contributions are not.
B) Roth IRA withdrawals are tax-free in retirement, while traditional IRA withdrawals are taxed as ordinary income.
C) Roth IRA contributions are made with pre-tax dollars, while traditional IRA contributions are made with after-tax dollars.
D) There are no income limits for contributing to a Roth IRA, unlike a traditional IRA.
What type of income is subject to the Net Investment Income Tax (NIIT)?
A) Wages earned as an employee
B) Long-term capital gains from the sale of personal property
C) Income from self-employment activities
D) Pension benefits
Which of the following business expenses is considered deductible for tax purposes?
A) Personal living expenses
B) Meal expenses related to personal travel
C) Costs associated with acquiring new clients
D) Personal automobile expenses unrelated to business use
What is the tax treatment of an employee’s contributions to a traditional 401(k) plan?
A) They are taxed as ordinary income in the year they are made.
B) They are tax-deferred until withdrawn during retirement.
C) They are taxed at a lower capital gains rate.
D) They are subject to payroll taxes in addition to income taxes.
Which of the following is NOT considered a qualified medical expense for purposes of a Health Savings Account (HSA)?
A) Over-the-counter medications
B) Cosmetic surgery
C) Doctor visits
D) Prescription drugs
What is the main advantage of tax-deferred investments, such as 401(k)s?
A) Earnings are tax-free while the investment is growing.
B) Contributions to the investment are tax-deductible.
C) Earnings are taxed at a lower rate than ordinary income.
D) Earnings are not subject to capital gains tax.
Which of the following tax strategies is typically used by investors to reduce their taxable income?
A) Short-term capital gains
B) Tax loss harvesting
C) Paying off credit card debt
D) Investing in non-taxable municipal bonds
When must an individual report a sale of personal property for tax purposes?
A) When the property was sold for a gain
B) Only when the property is sold for more than its original purchase price
C) When the property is sold for a loss
D) All sales of personal property must be reported regardless of gain or loss.
What is the tax rate for long-term capital gains for taxpayers in the highest income tax bracket in 2024?
A) 0%
B) 10%
C) 15%
D) 20%
What is the tax treatment of income from a trust?
A) The trust itself is taxed on all income earned.
B) The income is passed through to the beneficiaries and taxed at their individual tax rates.
C) The income is exempt from tax.
D) The income is taxed at the corporate tax rate.
Which of the following is a characteristic of a tax credit versus a tax deduction?
A) A tax credit reduces taxable income, while a tax deduction reduces the amount of tax owed.
B) A tax credit directly reduces the tax owed, while a tax deduction reduces taxable income.
C) Both tax credits and deductions are available only to individuals with high incomes.
D) A tax credit increases taxable income, while a tax deduction increases the tax owed.
What is the main purpose of tax treaties between countries?
A) To prevent double taxation of the same income
B) To eliminate all taxes on foreign income
C) To impose taxes on international businesses
D) To provide a tax reduction for wealthy citizens
What is the tax treatment for qualified dividends?
A) They are taxed at the same rate as ordinary income
B) They are taxed at the same rate as capital gains
C) They are tax-free
D) They are taxed at a reduced rate
How does the IRS define “self-employment income”?
A) Income earned from a salaried position
B) Income from renting personal property
C) Income from a trade or business carried out by an individual
D) Passive income from investments
Which of the following would be a reason for the IRS to disallow a business deduction?
A) The expense is necessary and ordinary for the business
B) The expense is incurred for personal reasons
C) The expense is paid in cash
D) The expense is related to an employee benefit plan
What is the maximum amount that can be deducted for student loan interest in 2024?
A) $500
B) $1,000
C) $2,500
D) $5,000
Which of the following is true about a tax-free exchange under Section 1031?
A) The property received must be used for personal purposes.
B) The property exchanged must be held for investment or business purposes.
C) Both properties must be located in the same state.
D) The exchange must involve the sale of a capital asset.
Which of the following tax deductions is available for taxpayers who do not itemize?
A) Medical expenses
B) Charitable contributions
C) Standard deduction
D) State income tax
Which of the following is a requirement to qualify for the Child Tax Credit in 2024?
A) The child must be under the age of 18
B) The taxpayer must claim the child as a dependent
C) The child must be a U.S. citizen
D) All of the above
What is the tax rate on a Qualified Small Business Stock (QSBS) held for over five years?
A) 0%
B) 10%
C) 15%
D) 28%
What is the primary purpose of an estate tax return (Form 706)?
A) To determine the taxable value of an estate after a person’s death
B) To file a claim for tax deductions for estate expenses
C) To calculate the inheritance tax for beneficiaries
D) To report income from the estate during its administration
What is the tax implication of a gift made by an individual to a charity?
A) The gift is not deductible if the donor is not itemizing deductions
B) The donor may deduct the gift if they itemize deductions
C) The gift is subject to gift tax
D) The gift is subject to income tax
Which of the following is a characteristic of a tax-exempt organization?
A) The organization must have shareholders.
B) The organization is required to file Form 990.
C) The organization is exempt from state and federal taxes but not local taxes.
D) The organization cannot engage in political activity.
What is the limit on contributions to a Health Savings Account (HSA) for an individual under 55 in 2024?
A) $3,500
B) $6,000
C) $7,000
D) $8,000
What is the purpose of the Alternative Minimum Tax (AMT)?
A) To ensure that high-income individuals pay at least a minimum amount of tax
B) To reduce the tax liability of businesses with significant capital investments
C) To provide tax relief for low-income earners
D) To tax foreign income of U.S. citizens
When is a taxpayer required to file a tax return under the “Self-Employment Tax” rules?
A) Only if they owe more than $1,000 in taxes
B) When their net earnings exceed $400 from self-employment activities
C) When they earn passive income
D) When they receive a notice from the IRS
What is the tax rate for Social Security in 2024?
A) 3.5%
B) 6.2%
C) 7.65%
D) 15.3%
Which of the following is a feature of a SIMPLE IRA plan?
A) Only employers contribute to the plan
B) Employees can choose to make contributions to the plan
C) Only self-employed individuals can contribute
D) It allows for unlimited contribution amounts
How are state income taxes typically treated for federal tax purposes?
A) As an additional tax that reduces taxable income
B) As a tax credit
C) As an itemized deduction if the taxpayer chooses to itemize deductions
D) They are not deductible under any circumstances
Which of the following is true about tax credits versus tax deductions?
A) Tax credits reduce taxable income, while tax deductions reduce the amount of tax owed.
B) Both tax credits and deductions directly reduce the amount of tax owed.
C) Tax credits reduce the amount of tax owed, while tax deductions reduce taxable income.
D) Tax deductions and credits are not available to taxpayers who make more than $200,000 annually.
When does an individual need to file a tax return under the IRS “filing requirement”?
A) If the individual earns over $10,000 in wages
B) If the individual has tax liabilities exceeding $1,000
C) If the individual is self-employed and earns over $400
D) All of the above
What is the maximum amount of child and dependent care expenses that can be used for the Child and Dependent Care Credit in 2024?
A) $3,000
B) $5,000
C) $6,000
D) $8,000
What is the tax treatment for alimony payments under the 2024 tax law?
A) Alimony payments are deductible by the payer and taxable to the recipient
B) Alimony payments are not deductible by the payer and not taxable to the recipient
C) Alimony payments are deductible by the payer and not taxable to the recipient
D) Alimony payments are neither deductible by the payer nor taxable to the recipient
What is the main advantage of using a Roth IRA for retirement savings?
A) Contributions are tax-deductible
B) Earnings grow tax-deferred and withdrawals are tax-free in retirement
C) Contributions are tax-free
D) It has no contribution limits
Which of the following tax benefits is available for education expenses under Section 529 plans?
A) Contributions to the plan are tax-deductible
B) Earnings grow tax-free and withdrawals for qualified expenses are tax-free
C) Withdrawals for any purpose are tax-free
D) Contributions are subject to a $10,000 annual limit
What is the maximum tax rate for long-term capital gains in 2024?
A) 15%
B) 20%
C) 25%
D) 28%
When can a taxpayer elect to treat a vehicle as a business expense for tax purposes?
A) If the vehicle is used for personal commuting
B) If the vehicle is used more than 50% for business purposes
C) If the vehicle is leased
D) If the vehicle is registered under the taxpayer’s name
What is the primary purpose of Form 8862?
A) To apply for an extension of time to file
B) To claim the Child Tax Credit
C) To claim the Earned Income Tax Credit (EITC) after it has been denied
D) To report foreign bank accounts
What is the tax treatment of gains from the sale of a primary residence in 2024?
A) Gains are always taxable
B) Gains up to $250,000 ($500,000 for married couples) may be excluded if certain requirements are met
C) Gains are taxable only if the property was inherited
D) Gains from the sale of a primary residence are excluded from tax only if the property was owned for more than 10 years
How is income from rental properties generally taxed?
A) As ordinary income
B) As capital gains
C) As dividend income
D) It is not taxable
What is the maximum contribution limit for an Individual Retirement Account (IRA) in 2024 for individuals under the age of 50?
A) $3,000
B) $5,000
C) $6,000
D) $7,000
Which of the following is true about the taxability of life insurance death benefits?
A) They are always subject to income tax
B) They are tax-free to the beneficiary if the death benefits do not exceed $1,000,000
C) They are tax-free to the beneficiary if paid as a lump sum
D) They are taxable to the beneficiary if the policyholder paid premiums with after-tax dollars
How does the IRS define “earned income” for the purposes of calculating the Earned Income Tax Credit (EITC)?
A) Only wages from an employer
B) Wages, salaries, and self-employment income
C) Wages, interest, and dividend income
D) Wages, salaries, and rental income
What is the maximum amount of credit that can be claimed for child and dependent care expenses under the Child and Dependent Care Credit in 2024?
A) $1,000
B) $2,000
C) $3,000
D) $5,000
Which of the following income sources is subject to the Net Investment Income Tax (NIIT)?
A) Wages
B) Social Security benefits
C) Interest and dividends
D) Rental income from real estate used for personal purposes
What is the limit on the amount of gifts that can be made tax-free under the annual gift exclusion for 2024?
A) $10,000
B) $15,000
C) $20,000
D) $30,000
What type of income is subject to self-employment tax?
A) Income from investments
B) Passive income from rental property
C) Net earnings from a trade or business
D) Wages from an employer
When is an employer required to issue Form W-2 to an employee?
A) By January 31 of the year following the tax year
B) By April 15 of the year following the tax year
C) By December 31 of the tax year
D) By March 15 of the year following the tax year
Which of the following is true about the tax treatment of an individual’s home office deduction?
A) It is only available to self-employed individuals
B) It can only be claimed by homeowners
C) It can be claimed for any office in the home, regardless of business use
D) The home office must be used exclusively and regularly for business purposes
What is the IRS tax treatment for a foreign tax credit?
A) It allows taxpayers to exclude foreign income from their taxable income
B) It allows taxpayers to receive a direct refund of foreign taxes paid
C) It allows taxpayers to claim a credit against U.S. tax liability for foreign taxes paid
D) It allows taxpayers to deduct foreign taxes paid from their gross income
What is the maximum tax credit available for the American Opportunity Tax Credit (AOTC) in 2024?
A) $500
B) $1,000
C) $2,500
D) $5,000
Under the Affordable Care Act, how is the Premium Tax Credit determined?
A) Based on the taxpayer’s filing status
B) Based on the taxpayer’s income and household size
C) Based on the type of health insurance purchased
D) Based on the number of dependents