Tax Core Practice Exam Quiz
Which of the following is generally NOT included in gross income?
A) Wages
B) Life insurance proceeds
C) Rental income
D) Dividends
What is the standard deduction for a single taxpayer in 2024?
A) $12,400
B) $13,850
C) $14,000
D) $25,000
Which of the following is a requirement for a taxpayer to qualify for the earned income tax credit?
A) Must be 65 years of age or older
B) Must have investment income exceeding $3,650
C) Must file jointly with a spouse
D) Must have earned income
The child tax credit is available to taxpayers with a child under which age?
A) 21
B) 17
C) 19
D) 18
Which of the following deductions is available to an individual taxpayer?
A) State income tax deduction
B) Charitable contributions deduction
C) Personal living expenses deduction
D) Both A and B
What is the tax rate on long-term capital gains for taxpayers in the highest tax bracket?
A) 10%
B) 15%
C) 20%
D) 25%
Which of the following items is not deductible for a self-employed taxpayer?
A) Health insurance premiums
B) Business mileage
C) Personal mortgage interest
D) Retirement plan contributions
What is the maximum contribution to a Roth IRA for a single taxpayer under the age of 50 in 2024?
A) $5,500
B) $6,000
C) $7,000
D) $8,000
Which of the following is taxable income for a corporation?
A) Tax-exempt interest from municipal bonds
B) Dividends received from other corporations
C) Contributions to capital
D) None of the above
Which of the following is considered tax evasion?
A) Underreporting income on a tax return
B) Disputing a tax assessment
C) Claiming valid deductions
D) Asking for an extension to file taxes
For a C Corporation, what is the tax rate on the first $50,000 of taxable income?
A) 15%
B) 21%
C) 10%
D) 25%
Which of the following is a requirement for an employee to qualify for a tax-free fringe benefit?
A) Must work for the same employer for 5 years
B) Benefit must be provided to all employees
C) Must be paid in cash
D) None of the above
What is the maximum contribution to a 401(k) plan for an employee under the age of 50 in 2024?
A) $18,000
B) $19,000
C) $22,500
D) $23,500
What is the tax treatment of alimony payments under agreements made after December 31, 2018?
A) Deductible for the payer, taxable to the recipient
B) Non-deductible for the payer, non-taxable to the recipient
C) Non-deductible for the payer, taxable to the recipient
D) Deductible for the payer, non-taxable to the recipient
Which of the following is a tax-exempt organization?
A) A political action committee
B) A social club
C) A religious organization
D) A for-profit corporation
Which of the following is a capital asset?
A) Inventory held for sale
B) Personal residence
C) Accounts receivable
D) Depreciable property used in a business
What is the maximum contribution to an HSA (Health Savings Account) for a family in 2024?
A) $3,650
B) $7,300
C) $7,650
D) $8,000
Which of the following is subject to the self-employment tax?
A) Salary received by an employee
B) Net earnings from a sole proprietorship
C) Rental income
D) Dividends
Which of the following is NOT a characteristic of a qualified plan for retirement?
A) The plan must be non-discriminatory
B) Contributions are tax-deductible
C) Employees must contribute a percentage of their salary
D) Employees must reach age 59½ to withdraw funds
Which of the following is true about a traditional IRA?
A) Contributions are made with after-tax dollars
B) Distributions are tax-free
C) Contributions are tax-deductible
D) All distributions are taxed as capital gains
The tax rate on corporate dividends paid to individuals is generally:
A) 15%
B) 20%
C) 0%
D) 25%
What is the tax treatment of a non-qualified stock option?
A) Taxed at grant
B) Taxed at exercise
C) Taxed at sale
D) No tax treatment until sold
Which of the following taxes is typically not paid by an employee?
A) Social Security tax
B) Medicare tax
C) Federal income tax
D) Corporate income tax
How is a partnership taxed?
A) The partnership pays taxes on its income
B) The individual partners pay taxes on the partnership’s income
C) The partnership is tax-exempt
D) The partners pay taxes on their share of the income
Which of the following items is subject to the Alternative Minimum Tax (AMT)?
A) Long-term capital gains
B) State income taxes
C) Depreciation deductions
D) All of the above
What is the primary function of the IRS in tax law enforcement?
A) To audit businesses and individuals
B) To prosecute criminal tax evasion cases
C) To issue regulations and guidance on tax laws
D) To provide tax refunds
A taxpayer who files as head of household qualifies for which of the following?
A) A higher standard deduction than single taxpayers
B) A lower standard deduction than single taxpayers
C) The same standard deduction as married taxpayers filing jointly
D) No standard deduction
Which of the following is considered a tax-free fringe benefit?
A) Personal use of a company car
B) Employer contributions to a 401(k) plan
C) Bonuses paid to employees
D) Employee meals provided on a regular basis
The income from the sale of a principal residence is excluded from taxable income up to a maximum of:
A) $100,000 for single filers
B) $200,000 for single filers
C) $250,000 for single filers, $500,000 for married filing jointly
D) $500,000 for single filers, $1,000,000 for married filing jointly
What type of tax is the Federal Unemployment Tax Act (FUTA)?
A) Payroll tax
B) Income tax
C) Sales tax
D) Property tax
Which of the following types of income is not subject to self-employment tax?
A) Rental income
B) Income from a sole proprietorship
C) Income from a partnership
D) S corporation income
Which of the following is a tax-exempt entity under Section 501(c)(3)?
A) Political organizations
B) Charitable organizations
C) Trade associations
D) Labor unions
For tax purposes, which of the following types of interest is exempt from federal taxation?
A) Interest on corporate bonds
B) Interest on Treasury bills
C) Interest on municipal bonds
D) Interest on savings accounts
What is the maximum amount of gain that may be excluded from gross income on the sale of a principal residence for a married couple filing jointly?
A) $250,000
B) $500,000
C) $1,000,000
D) $200,000
Which of the following is an example of a non-taxable fringe benefit?
A) Dependent care assistance
B) Life insurance coverage
C) Health insurance premiums
D) Company car for personal use
Which of the following is a requirement for a corporation to qualify for S corporation status?
A) Must have more than 100 shareholders
B) Must be a foreign corporation
C) Must only have one class of stock
D) Must be a publicly traded company
How long must a taxpayer keep records to substantiate claims for deductions, credits, or income on tax returns?
A) 1 year
B) 3 years
C) 5 years
D) 7 years
A partnership must file an annual return on IRS Form:
A) 1065
B) 1120
C) 990
D) 1040
Which of the following is considered “earned income” for purposes of the earned income tax credit?
A) Rental income
B) Dividend income
C) Wages from a job
D) Interest income
Which of the following is true regarding child and dependent care expenses?
A) The maximum tax credit is $2,000 for one child
B) The expenses must be for children under the age of 15
C) The expenses must be incurred in order for both spouses to work or look for work
D) Child care expenses are only eligible for tax-free treatment if paid to a relative
What is the tax treatment for an individual who sells stock at a gain, which was held for more than one year?
A) Ordinary income tax rates apply
B) Long-term capital gains tax rates apply
C) The gain is tax-exempt
D) The gain is subject to a flat 15% tax rate
A taxpayer must file an income tax return if their gross income exceeds:
A) The standard deduction
B) The exemption amount
C) A specific threshold based on filing status
D) The limit for credits and deductions
Which of the following is a feature of a Section 529 college savings plan?
A) Contributions are not deductible for federal income tax purposes
B) Withdrawals are subject to capital gains tax
C) Earnings are not subject to federal tax if used for qualified educational expenses
D) Contributions are limited to $1,000 per year
What is the maximum amount of child tax credit that a taxpayer can claim per qualifying child in 2024?
A) $500
B) $1,000
C) $2,000
D) $3,000
What is the tax rate on the first $9,875 of taxable income for a single taxpayer in 2024?
A) 10%
B) 12%
C) 22%
D) 24%
Which of the following is NOT considered a business expense for tax purposes?
A) Depreciation of business property
B) Cost of goods sold
C) Personal living expenses
D) Salaries and wages paid to employees
Which of the following items are deductible by a self-employed taxpayer?
A) Childcare expenses
B) Health insurance premiums for the taxpayer and family
C) Home mortgage interest
D) Student loan interest
Which of the following describes the tax treatment of a 1031 like-kind exchange?
A) Gain is fully recognized and taxed
B) Gain is partially recognized and taxed
C) Gain is deferred until the replacement property is sold
D) Losses are recognized and deducted immediately
Which of the following is the maximum amount that a taxpayer can contribute to a traditional IRA in 2024, if they are under age 50?
A) $5,000
B) $6,000
C) $7,000
D) $8,000
Which of the following is subject to a 10% penalty for early withdrawal from an IRA?
A) Withdrawing after age 59½
B) Withdrawing for a first-time home purchase
C) Withdrawing to pay for qualified education expenses
D) Withdrawing before age 59½ for non-exempt reasons
Which of the following is considered taxable income for a self-employed taxpayer?
A) Income from a rental property
B) Salary from a job
C) Net income from a sole proprietorship
D) Social Security benefits
A taxpayer receives a refund of state income taxes. What is the tax treatment of this refund?
A) It is taxable if the taxpayer itemized deductions in the prior year
B) It is always taxable
C) It is never taxable
D) It is taxable only if the taxpayer’s income exceeds $100,000
Which of the following deductions is available for a married couple filing jointly?
A) Standard deduction
B) Itemized deductions
C) Either A or B
D) None of the above
Which of the following is a characteristic of a Roth IRA?
A) Contributions are tax-deductible
B) Withdrawals are tax-free
C) Contributions must be made by age 70½
D) Earnings are subject to tax upon withdrawal
What is the primary purpose of the Alternative Minimum Tax (AMT)?
A) To encourage taxpayers to contribute to retirement plans
B) To ensure that high-income taxpayers pay a minimum level of tax
C) To reduce the tax burden on corporations
D) To provide tax incentives for charitable giving
Which of the following is a qualifying expense for the American Opportunity Credit?
A) Tuition
B) Room and board
C) Transportation costs
D) Books for personal use
Which of the following statements is true regarding capital gains tax?
A) Capital gains are taxed at ordinary income tax rates
B) Capital gains are always taxed at 15%
C) Long-term capital gains are taxed at lower rates than ordinary income
D) All capital gains are tax-exempt
Which of the following is NOT a qualifying deduction for medical expenses?
A) Health insurance premiums
B) Long-term care insurance premiums
C) Cosmetic surgery costs
D) Prescription drugs
Which of the following taxes is primarily used to fund Social Security benefits?
A) Income tax
B) Estate tax
C) Federal Insurance Contributions Act (FICA) tax
D) Sales tax
Which of the following is true about tax-deferred retirement accounts?
A) Contributions are not taxed until withdrawn
B) Contributions are taxed immediately
C) Distributions are taxed as capital gains
D) Withdrawals are always tax-free
Which of the following items is deductible as a business expense?
A) Interest on a personal loan
B) Medical expenses
C) Business travel expenses
D) Charitable donations
Which of the following taxpayers is eligible for the earned income tax credit (EITC)?
A) A taxpayer with no children and earned income below the threshold
B) A taxpayer who earns only dividend income
C) A taxpayer with children but no earned income
D) A taxpayer with income from self-employment
Which of the following is true regarding tax-free municipal bonds?
A) They are exempt from federal income tax
B) They are exempt from state income tax only if the bonds are issued in the state of residence
C) They are subject to federal income tax but exempt from state taxes
D) They are subject to state and federal income taxes
Which of the following types of income is generally excluded from gross income for federal tax purposes?
A) Disability benefits
B) Child support payments
C) Rent received from a rental property
D) Salaries and wages
What is the maximum amount of annual contributions allowed to a traditional IRA for individuals under age 50?
A) $4,000
B) $5,500
C) $6,000
D) $7,500
What is the tax treatment of a $10,000 inheritance from an estate?
A) It is fully taxable as income
B) It is partially taxable depending on the beneficiary’s income
C) It is not subject to income tax but may be subject to estate taxes
D) It is exempt from both income and estate taxes
Which of the following is a requirement for a taxpayer to claim a dependent under the qualifying child rules?
A) The child must be a U.S. citizen
B) The child must be under the age of 25
C) The child must live with the taxpayer for more than half the year
D) The child must have earned income
Which of the following types of property is eligible for a like-kind exchange under Section 1031 of the Internal Revenue Code?
A) Personal-use property
B) Inventory
C) Real estate held for investment
D) Stocks and bonds
Which of the following is NOT considered a tax-deductible expense for a business?
A) Employee wages
B) Office rent
C) Entertainment expenses for employees
D) Personal clothing expenses for business owners
What is the primary purpose of the Foreign Tax Credit?
A) To encourage U.S. citizens to invest in foreign markets
B) To reduce double taxation of foreign income
C) To provide a tax incentive for U.S. corporations operating abroad
D) To reduce the tax burden on foreign corporations
Which of the following is an allowable deduction for a self-employed individual?
A) Meals for business meetings
B) Personal travel expenses
C) Home mortgage interest
D) Educational expenses unrelated to the business
What is the maximum percentage of gross income that can be deducted for charitable contributions by an individual taxpayer?
A) 20%
B) 30%
C) 50%
D) 60%
Which of the following is considered a “qualified expense” for a 529 college savings plan?
A) Tuition fees
B) Personal expenses like clothing and entertainment
C) Housing costs not related to school
D) Transportation to and from school
Which of the following individuals must file a tax return?
A) A single taxpayer under age 65 with gross income of $12,000
B) A married taxpayer with gross income of $5,000
C) A self-employed individual with income of $3,000
D) A dependent with no income
Which of the following items is NOT tax-deductible for a business?
A) Office supplies
B) Advertising expenses
C) Business-related travel
D) Personal automobile expenses for business use
What is the standard deduction for a married couple filing jointly in 2024?
A) $12,400
B) $18,000
C) $24,000
D) $25,100
Which of the following is a key characteristic of a tax-exempt organization under Section 501(c)(3)?
A) It must be organized for charitable purposes
B) It may distribute profits to shareholders
C) It can engage in political lobbying
D) It is exempt from paying any form of taxes
Which of the following is not eligible for tax-deferred status in a retirement plan?
A) Traditional IRA
B) 401(k)
C) Roth IRA
D) SEP IRA
Which of the following is a requirement for a taxpayer to qualify for the child tax credit?
A) The child must be under 21
B) The child must be a U.S. citizen
C) The child must live outside the U.S.
D) The child must be a full-time student
Which of the following best describes the tax treatment of a qualified distribution from a Roth IRA?
A) It is fully taxed as ordinary income
B) It is tax-free if the Roth IRA has been open for at least five years
C) It is subject to a 10% early withdrawal penalty
D) It is taxed only on earnings
Which of the following is NOT a source of income for a taxpayer?
A) Wages from employment
B) Rental income
C) Life insurance proceeds from a policy owned by the taxpayer
D) Interest from a savings account
What is the maximum tax-free amount that can be received from an employer for educational assistance?
A) $1,000
B) $2,500
C) $5,250
D) $10,000
Which of the following is true about tax-deferred annuities?
A) Contributions are taxed immediately
B) Contributions are taxed when withdrawn
C) Earnings grow tax-free, but withdrawals are taxed
D) Withdrawals are always tax-free
What is the maximum amount of long-term capital gain that is exempt from tax for a taxpayer in the 0% long-term capital gains tax bracket?
A) $0
B) $25,000
C) $50,000
D) $100,000
What is the maximum annual contribution that can be made to a health savings account (HSA) in 2024 for an individual with self-only coverage?
A) $2,000
B) $3,650
C) $4,000
D) $6,500
Which of the following statements is true regarding tax filing requirements for dependents?
A) A dependent can always claim their own exemption
B) A dependent who has earned income must file a tax return if their income exceeds the standard deduction
C) A dependent cannot receive earned income
D) A dependent must always file a tax return regardless of income
Which of the following is considered taxable income?
A) Disability payments
B) Gifts
C) Inheritances
D) Unemployment compensation
Which of the following best describes a tax-exempt organization?
A) It does not have to file an annual tax return
B) It may engage in political activity without restrictions
C) It is exempt from paying income taxes on earnings
D) It can distribute profits to members
What is the tax treatment of interest earned on a certificate of deposit (CD)?
A) The interest is tax-free
B) The interest is taxable as ordinary income
C) The interest is subject to capital gains tax
D) The interest is only taxable if the CD is cashed before maturity
What is the maximum amount that can be excluded from gross income for employer-provided adoption assistance?
A) $5,000
B) $10,000
C) $15,000
D) $20,000
Which of the following is true about the Child and Dependent Care Credit?
A) The credit is available only for dependent children under 13 years old
B) The credit is a refundable credit
C) The credit is based on the amount of employment-related expenses for the care of a child or dependent
D) The credit is available to all taxpayers with dependents
Which of the following is true regarding a taxpayer’s basis in property received as a gift?
A) The basis is the donor’s adjusted basis at the time of the gift
B) The basis is always the fair market value at the time of the gift
C) The basis is the fair market value at the time of the gift if the donor’s basis exceeds the fair market value
D) The basis is zero if the property is sold at a gain
Which of the following expenses is deductible for a business using the cash method of accounting?
A) Expenses incurred but not paid by year-end
B) Prepaid expenses
C) Expenses paid during the year, regardless of when incurred
D) None of the above
Which of the following is NOT a requirement to qualify for the tax-free treatment of a qualified tuition program (529 Plan)?
A) The funds must be used for qualified educational expenses
B) The beneficiary must attend an eligible educational institution
C) The program must be sponsored by the federal government
D) The program must meet certain state-specific requirements
How is a taxpayer’s tax liability affected by the alternative minimum tax (AMT)?
A) The taxpayer is liable for the higher of the AMT or regular tax liability
B) AMT is a separate tax that is only applicable to high-income earners
C) AMT increases the tax rate for taxpayers who have large capital gains
D) The taxpayer is liable for both the regular tax liability and AMT
Which of the following is considered taxable income for a partnership?
A) Partner’s share of partnership earnings
B) Partner’s share of partnership losses
C) Capital gains on the sale of the partnership property
D) None of the above
Which of the following types of income is subject to self-employment tax?
A) Wages from an employer
B) Rental income
C) Income from a sole proprietorship
D) Dividend income
What is the tax treatment of stock dividends?
A) They are always taxable at the time of receipt
B) They are not taxable if reinvested in additional shares
C) They are taxable only if paid in cash
D) They are generally not taxable unless the dividend is more than a return on capital
Which of the following is NOT a tax deduction for a corporation?
A) Salaries paid to employees
B) Charitable contributions
C) Fines and penalties
D) Interest expense on business loans
Which of the following is true regarding tax-deferred retirement plans?
A) Contributions to tax-deferred plans are subject to immediate taxation
B) Withdrawals from tax-deferred plans are taxed at ordinary income rates
C) There is no annual limit on contributions to tax-deferred plans
D) Tax-deferred plans include Roth IRAs and traditional IRAs
Which of the following is NOT a factor in determining a taxpayer’s filing status?
A) Marital status
B) Age of the taxpayer
C) Number of dependents
D) Whether the taxpayer is a U.S. citizen or resident alien
Which of the following tax credits is available to low- to moderate-income working individuals and families?
A) Child Tax Credit
B) Earned Income Tax Credit
C) American Opportunity Credit
D) Lifetime Learning Credit
What is the maximum amount of the American Opportunity Tax Credit (AOTC) for each eligible student?
A) $500
B) $1,000
C) $2,500
D) $5,000
Which of the following is considered an ordinary and necessary business expense?
A) A business-related trip to a foreign country
B) A vacation trip with occasional business meetings
C) Entertainment expenses for clients without a business purpose
D) Capital expenses like purchasing equipment
How are unemployment compensation payments treated for tax purposes?
A) They are fully exempt from federal income tax
B) They are partially taxable based on income level
C) They are subject to self-employment tax
D) They are taxable at the same rate as wages
Which of the following deductions is subject to a phase-out based on income?
A) Standard deduction
B) Charitable contribution deduction
C) Mortgage interest deduction
D) Child Tax Credit
Which of the following is true regarding an S Corporation?
A) It is taxed as a separate entity
B) It passes through its income to shareholders for taxation
C) It is subject to corporate income tax
D) It can have an unlimited number of shareholders
Which of the following is NOT a requirement for claiming a qualifying child as a dependent?
A) The child must be under 19 or under 24 if a full-time student
B) The child must live with the taxpayer for more than half the year
C) The child must not provide more than half of their own support
D) The child must not be a U.S. citizen or resident alien
Which of the following is subject to tax on net investment income?
A) Qualified dividends
B) Interest income from municipal bonds
C) Capital gains from the sale of personal residence
D) Tax-exempt income from a 401(k) plan
What is the effect of tax credits on a taxpayer’s tax liability?
A) Tax credits reduce taxable income
B) Tax credits increase taxable income
C) Tax credits reduce the amount of tax owed dollar-for-dollar
D) Tax credits are applied after tax deductions are made
What is the maximum annual contribution limit for a Health Savings Account (HSA) for an individual with family coverage?
A) $3,000
B) $4,500
C) $5,000
D) $7,300
Which of the following is true about tax-exempt organizations?
A) They are exempt from income tax on their earnings
B) They are exempt from all taxes, including sales and property taxes
C) They must engage in lobbying activities to maintain tax-exempt status
D) They can distribute profits to their members
Which of the following is NOT an allowable deduction for a self-employed taxpayer?
A) Health insurance premiums
B) Child care expenses
C) Business meals
D) Vehicle expenses for business use
Which of the following is true about the deduction for student loan interest?
A) It is available to all taxpayers regardless of income
B) It is available only to those who itemize deductions
C) It is available to taxpayers with an adjusted gross income (AGI) below a certain threshold
D) It is subject to a flat deduction rate of $2,000 per year
Which of the following types of income is subject to the Net Investment Income Tax (NIIT)?
A) Rental income
B) Income from an active trade or business
C) Wages and salaries
D) Interest from municipal bonds
What is the tax treatment of a gift to a charitable organization?
A) It is fully deductible as a business expense
B) It is not deductible for tax purposes
C) It is deductible as an itemized deduction subject to certain limits
D) It is subject to tax at the time of the donation
Which of the following is true about Roth IRAs?
A) Contributions are tax-deductible
B) Withdrawals are subject to tax on earnings
C) Contributions grow tax-free, and withdrawals are tax-free after age 59½
D) Contributions are taxed at the time of deposit
Which of the following is NOT considered taxable income?
A) Wages and salary
B) Social Security benefits (under certain conditions)
C) Child support payments
D) Interest income from corporate bonds
Which of the following is true about tax credits?
A) They reduce the amount of taxable income
B) They reduce the tax liability dollar-for-dollar
C) They are applied before tax deductions
D) They increase the amount of tax owed
What is the maximum amount that can be contributed to a traditional IRA for individuals under age 50 in 2024?
A) $3,000
B) $5,000
C) $6,000
D) $7,000
Which of the following is subject to self-employment tax?
A) Salary from an employer
B) Interest income from savings accounts
C) Income from a sole proprietorship
D) Capital gains from the sale of property
What is the penalty for early withdrawal from a traditional IRA before age 59½?
A) 5% penalty on the withdrawal amount
B) 10% penalty on the withdrawal amount
C) 15% penalty on the withdrawal amount
D) There is no penalty for early withdrawal
Which of the following qualifies as a dependent for tax purposes?
A) A friend who lives in the taxpayer’s home
B) A sibling who is under 25 and a full-time student
C) A child who is 27 years old and works full-time
D) A non-relative who provides more than half of their own support
Which of the following is NOT a characteristic of a partnership?
A) Partners share profits and losses
B) A partnership is subject to federal income tax
C) A partnership is a pass-through entity
D) Partners are personally liable for partnership debts
What is the tax treatment of alimony paid under divorce agreements finalized before 2019?
A) It is taxable to the recipient and deductible by the payer
B) It is taxable to the recipient but not deductible by the payer
C) It is not taxable to the recipient or deductible by the payer
D) It is not taxable to the recipient but deductible by the payer
What is the maximum lifetime learning credit available for qualified education expenses?
A) $2,000 per taxpayer
B) $1,000 per student
C) $10,000 per student
D) $5,000 per taxpayer
Which of the following is true about the Earned Income Tax Credit (EITC)?
A) The EITC is available only to low-income taxpayers with children
B) The EITC is a refundable credit
C) The EITC can be claimed by anyone with earned income
D) The EITC is nonrefundable and reduces tax liability to zero
Which of the following is a requirement for deducting medical expenses?
A) Medical expenses must exceed 5% of adjusted gross income (AGI)
B) Medical expenses must exceed 7.5% of AGI for most taxpayers
C) Medical expenses must be claimed as a tax credit
D) Medical expenses must be paid in cash or check
Which of the following can be considered a capital asset for tax purposes?
A) Inventory held by a business
B) Real estate held for investment
C) Accounts receivable of a business
D) Depreciable business property
Which of the following is an example of a tax-deferred account?
A) Roth IRA
B) 401(k)
C) Health Savings Account (HSA)
D) Traditional IRA
Which of the following is true about an S Corporation?
A) It is taxed as a partnership
B) It can have more than 100 shareholders
C) It must be a large corporation to elect S Corporation status
D) Its income is subject to corporate income tax
What is the maximum contribution limit for a Health Savings Account (HSA) for family coverage in 2024?
A) $3,500
B) $6,550
C) $7,300
D) $8,300
What is the tax treatment of qualified dividends?
A) They are taxed 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 lower rate than ordinary income
Which of the following is true regarding an Individual Retirement Account (IRA)?
A) Contributions to a Roth IRA are tax-deductible
B) Contributions to a traditional IRA may be tax-deductible
C) Both Roth and traditional IRAs offer tax-free withdrawals
D) IRAs are limited to only employee contributions
Which of the following is NOT an allowable deduction for a business?
A) Salaries and wages paid to employees
B) Rent on business property
C) Personal medical expenses of the business owner
D) Advertising expenses
Which of the following is a characteristic of a tax-exempt organization?
A) It must engage in political activity to maintain its status
B) It is exempt from federal income tax on earnings related to its tax-exempt purpose
C) It can distribute its profits to members
D) It can avoid all state and local taxes
Which of the following is a requirement for the Child Tax Credit?
A) The child must be under 17 years of age
B) The child must be a full-time student under 24 years old
C) The child must be a U.S. citizen or U.S. national
D) The child must have a valid Social Security number
What is the tax treatment of gifts in excess of the annual gift tax exclusion?
A) They are subject to gift tax, but not taxable to the recipient
B) They are not taxable to the recipient but reduce the donor’s estate tax exemption
C) They are taxable to the recipient but not to the donor
D) They are subject to income tax both for the donor and recipient
Which of the following is true about tax-exempt bonds?
A) They are subject to federal income tax
B) They are exempt from federal income tax but subject to state income tax
C) The interest earned is generally exempt from federal income tax
D) The interest earned is always subject to both federal and state income tax
Which of the following best describes the purpose of the Alternative Minimum Tax (AMT)?
A) To increase tax rates for high-income earners
B) To ensure that taxpayers with significant deductions pay a minimum level of tax
C) To eliminate the need for tax credits
D) To tax investment income at a higher rate
Which of the following is a characteristic of a tax-deferred retirement account?
A) Contributions are taxed when made, but withdrawals are tax-free
B) Contributions are tax-free when made, but withdrawals are taxed
C) Both contributions and withdrawals are taxed
D) Contributions are taxed, but withdrawals are tax-free
Which of the following taxes must a self-employed individual pay in addition to their income tax?
A) Federal unemployment tax (FUTA)
B) Self-employment tax
C) Corporate income tax
D) State income tax
Which of the following is true regarding an early distribution from a Roth IRA?
A) The distribution is always taxable and subject to a penalty
B) The distribution is taxable but not subject to a penalty if taken before age 59½
C) The distribution is not taxable if the Roth IRA has been open for at least five years
D) The distribution is not taxable if the individual is over age 59½
What is the maximum allowable annual contribution to a 401(k) plan for an individual under age 50 in 2024?
A) $5,500
B) $6,500
C) $22,500
D) $25,000
Which of the following is considered an “above-the-line” deduction for individual taxpayers?
A) Mortgage interest deduction
B) Charitable contributions
C) Student loan interest deduction
D) Medical expenses
Which of the following types of income is subject to the Net Investment Income Tax (NIIT)?
A) Wages and salary
B) Qualified dividends
C) Tax-exempt bond interest
D) Tax-free Social Security benefits
Which of the following statements is true regarding capital gains taxation?
A) Short-term capital gains are taxed at a lower rate than long-term capital gains
B) Long-term capital gains are taxed at the same rate as ordinary income
C) Short-term capital gains are taxed at the same rate as ordinary income
D) Long-term capital gains are tax-free after five years
Which of the following describes a tax treatment of the Sale of Principal Residence?
A) Up to $500,000 in capital gain can be excluded from tax if the taxpayer is married and meets certain conditions
B) Capital gains on the sale are always fully taxable, regardless of the amount
C) Only gains from sales of second homes are excluded from tax
D) Capital gains on the sale of a primary residence are not taxable if the taxpayer has lived in the house for less than two years
Which of the following can be deducted as an itemized deduction?
A) Commuting costs to work
B) Personal property taxes
C) Mortgage insurance premiums on a second home
D) Life insurance premiums
Which of the following deductions is allowed for a taxpayer who is self-employed?
A) Self-employed health insurance premiums
B) Personal health insurance premiums
C) Personal car expenses
D) Home mortgage interest for a second home
What is the filing deadline for individual income tax returns for the year 2024?
A) April 1, 2025
B) April 15, 2025
C) May 15, 2025
D) June 30, 2025
Which of the following types of income is exempt from federal income tax?
A) Interest from municipal bonds
B) Dividend income from a U.S. corporation
C) Salaries from government employees
D) Rent income from real estate
Which of the following is an example of a tax-free exchange under Section 1031?
A) Sale of personal residence
B) Exchange of one rental property for another rental property
C) Exchange of stocks and bonds
D) Exchange of artwork for cash
Which of the following is a requirement for claiming the American Opportunity Tax Credit (AOTC)?
A) The student must be enrolled in a graduate program
B) The student must be enrolled at least half-time in a program leading to a degree
C) The student must be age 25 or older
D) The student must have incurred at least $10,000 in qualified expenses
Which of the following would generally NOT be considered taxable income?
A) Wages
B) Unemployment benefits
C) Workers’ compensation benefits
D) Business income
Which of the following entities is required to file an income tax return?
A) A single-member LLC that is taxed as a sole proprietorship
B) A disregarded entity
C) A corporation
D) A general partnership that has no income
Which of the following is an example of “ordinary” income?
A) Capital gains from the sale of stock
B) Rental income from real estate
C) Tax-free bond interest
D) Qualified dividends
Which of the following is true about the child and dependent care tax credit?
A) The credit is refundable
B) It can only be claimed for daycare costs for children under 18
C) It can be claimed for both dependent children and adult dependents
D) It is limited to costs for children under the age of 13
Which of the following is a requirement for the earned income tax credit (EITC)?
A) The taxpayer must have at least one dependent
B) The taxpayer must be age 65 or older
C) The taxpayer must have taxable income
D) The taxpayer must be self-employed
Which of the following is an allowable tax deduction for a C corporation?
A) Dividends paid to shareholders
B) Salaries and wages paid to employees
C) Salaries paid to officers who are also shareholders
D) Charitable contributions exceeding 25% of taxable income
Which of the following is true regarding the standard deduction for tax year 2024?
A) It is based on the taxpayer’s filing status and age
B) It can be claimed in addition to itemized deductions
C) It is only available to taxpayers who do not claim any other deductions
D) It is the same for all filing statuses
What is the primary tax benefit of a Health Savings Account (HSA)?
A) Contributions are deductible, but withdrawals for qualified medical expenses are tax-free
B) Contributions are not deductible, but withdrawals for qualified medical expenses are tax-free
C) Both contributions and withdrawals are taxable
D) Both contributions and withdrawals are tax-free
Which of the following individuals is NOT eligible for the Child Tax Credit?
A) A taxpayer with a 17-year-old child
B) A taxpayer with a 6-year-old child
C) A taxpayer with a child who is a U.S. citizen
D) A taxpayer with a dependent who is not a U.S. citizen but is a resident alien
What is the maximum tax rate for long-term capital gains on assets held for more than one year in 2024?
A) 0%
B) 10%
C) 15%
D) 20%
Which of the following is a qualified retirement plan for a self-employed individual?
A) 401(k)
B) SIMPLE IRA
C) SEP IRA
D) All of the above
Which of the following is true about a tax credit for the adoption of a child?
A) It is refundable
B) It is available for any child regardless of age
C) It can only be used for expenses related to the adoption of a foreign child
D) It is a nonrefundable credit, meaning it can only reduce the tax liability to zero
Which of the following expenses qualifies as a deductible business expense for a sole proprietor?
A) Salaries paid to family members
B) Rent paid for a home office
C) Meals and entertainment for personal purposes
D) Personal health insurance premiums
Which of the following is true regarding the taxation of a traditional IRA distribution?
A) Distributions are tax-free if the taxpayer is over age 59½
B) Distributions are taxable at ordinary income tax rates
C) Distributions are taxed at long-term capital gains rates
D) Distributions are subject to a 5% penalty tax
Which of the following would cause a taxpayer to lose the ability to claim a deduction for medical expenses?
A) The taxpayer’s total medical expenses exceed 7.5% of their adjusted gross income (AGI)
B) The taxpayer itemizes deductions
C) The taxpayer’s medical expenses exceed the standard deduction
D) The taxpayer receives reimbursements from insurance or health plans
Which of the following statements is true regarding tax treatment of alimony payments?
A) Alimony payments are deductible by the payer and taxable to the recipient for divorce agreements executed after 2018
B) Alimony payments are taxable to the payer and deductible by the recipient for divorce agreements executed after 2018
C) Alimony payments are not deductible by the payer or taxable to the recipient for divorce agreements executed after 2018
D) Alimony payments are deductible by the payer and taxable to the recipient for divorce agreements executed after 2018
What is the maximum charitable contribution deduction allowed for an individual taxpayer in 2024?
A) 10% of AGI
B) 20% of AGI
C) 30% of AGI
D) 60% of AGI
Which of the following is considered taxable income for a corporation?
A) Dividends received from another corporation
B) Earnings from selling inventory
C) Contributions to a charitable organization
D) Loans from shareholders
Which of the following is NOT a requirement for a tax-deferred 1031 exchange?
A) Both properties involved in the exchange must be used for business or investment purposes
B) The properties exchanged must be similar in nature or character
C) The exchange must involve the transfer of real estate only
D) The exchange must be completed within 180 days from the sale of the first property
Which of the following is true about the taxation of gifts?
A) Gifts received are always taxable to the recipient
B) The donor is responsible for paying any gift tax due
C) Gifts to charitable organizations are taxable to the recipient
D) Gifts of up to $25,000 are exempt from the gift tax
Which of the following is an example of a tax-exempt income?
A) Interest from U.S. Treasury bonds
B) Dividend income from a domestic corporation
C) Wages earned by an employee
D) Social Security benefits
What is the maximum contribution limit for a SIMPLE IRA in 2024?
A) $5,500
B) $6,500
C) $13,500
D) $22,500
Which of the following is true regarding the taxation of Social Security benefits?
A) Social Security benefits are always fully taxable
B) Social Security benefits are never taxable
C) Social Security benefits are taxable depending on the taxpayer’s income level
D) Social Security benefits are taxable only if the recipient is under age 65
Which of the following is true about the taxation of dividends?
A) All dividends are taxed as ordinary income
B) Qualified dividends are taxed at the same rate as ordinary income
C) Qualified dividends are taxed at a preferential rate
D) Dividends from tax-exempt organizations are taxable
Which of the following is a primary advantage of investing in tax-free municipal bonds?
A) Tax-free interest income at both the federal and state levels
B) Interest income is exempt from federal taxes only
C) Interest income is taxed at a lower rate than regular income
D) The bonds are exempt from federal and state taxes, but the principal is not protected
What is the purpose of the alternative minimum tax (AMT)?
A) To ensure that taxpayers with high incomes pay at least a minimum level of tax
B) To penalize taxpayers for not making estimated tax payments
C) To provide a tax break to middle-income earners
D) To ensure that all taxpayers claim at least some deductions