Question 1

Which of the following statements regarding tax credits is true?

Accepted Answer

Tax credits reduce the amount of taxes payable dollar for dollar, regardless of the taxpayer's income level or marginal tax rate. Tax deductions, on the other hand, reduce taxable income, resulting in a lower tax liability based on the taxpayer's marginal tax rate.

Question 2

Which of the following is not an itemized deduction?

Accepted Answer

Alimony paid is a for AGI deduction.

Question 3

Which of the following is NOT a from AGI deduction?

Accepted Answer

From AGI deductions consist of the greater of the standard deduction or itemized deductions and personal and dependency exemptions.

Question 4

Joanna received $60,000 compensation from her employer, the value of her stock in ABC company appreciated by $5,000 during the year (but she did not sell any of the stock), she received $30,000 of life insurance proceeds from the death of her husband. What is the amount of Joanna's gross income from these items?

Accepted Answer

$60,000 compensation is included in gross income, the increase in the value of her stock is not realized income so it is not included in gross income, and the life insurance proceeds are excluded from gross incom

Question 5

Which of the following statements regarding tax deductions is false?

Accepted Answer

For AGI deductions tend to be associated with business activities and from AGI deductions tend to be associated with personal activities.

Question 6

Which of the following statements is true?

Accepted Answer

Qualified dividends are taxed at a lower rate than the same amount of ordinary income. This is true regardless of the taxpayer's filing status or the tax year in which the income is taxed. Capital gains are also taxed at a lower rate than ordinary income, but they are not considered ordinary income.

Question 7

Madison's gross tax liability is $9,000. Madison had $3,000 of tax credits available and she had $8,000 of taxes withheld by her employer. What is Madison's taxes due (or taxes refunded) with her tax return?

Accepted Answer

Madison's gross tax liability of $9,000 minus her tax credits of $3,000 equals $6,000. Then, her taxes withheld by her employer of $8,000 minus her tax liability of $6,000 leaves a remaining $2,000 tax refund. Therefore, Madison will receive a tax refund of $2,000.

Question 8

Anna is a 21-year-old full-time college student (she plans on returning home at the end of the school year). Her total support for the year was $34,000 (including $8,000 of tuition). Anna covered $12,000 of her support costs out of her own pocket (from savings, she did not work) and she received an $8,000 scholarship that covered all of her tuition costs. Which of the following statements regarding who is allowed to claim Anna as an exemption is true?

Accepted Answer

Even if Anna's grandparents provided the remaining $14,000 of support for Anna ($34,000 minus $12,000 minus $8,000), they would not be able to claim her as a dependent. This is because Anna provided more than half her own support, making her ineligible to be claimed as a dependent by anyone other than her parents. Additionally, she does not qualify for a personal exemption since she is still considered a qualifying child of her parents.

Question 9

Which of the following relationships does NOT pass the relationship test for a qualifying child?

Accepted Answer

Stepsister's daughter, half-brother, and stepsister are all valid relationships for a qualifying chil

Question 10

Jamison's gross tax liability is $7,000. Jamison had $2,000 of available credits and he had $4,000 of taxes withheld by his employer. What is Jamison's taxes due (or taxes refunded) with his tax return?

Accepted Answer

Jamison's gross tax liability is $7,000. After applying the $2,000 credits, the liability is reduced to $5,000. With $4,000 already withheld, Jamison still owes $1,000.

Question 11

Which of the following statements regarding personal and dependency exemptions is false?

Accepted Answer

To qualify as a dependent of another, an individual must be a resident of the United States, Canada, or Mexico. Also, there is no gross income test for a qualifying chil

Question 12

Which of the following types of income are not considered ordinary income?

Accepted Answer

Net long-term capital gains and qualified dividend income are subject to preferential rates and are thus not considered to be ordinary income. Compensation income and ordinary dividends are considered ordinary income.

Question 13

Charlotte is the Lucas family's 22-year-old daughter. She is a full-time student at an out-of-state university but plans to return home when the school year ends. During the year, Charlotte earned $4,000 of income working part-time. Her support totaled $30,000 for the year. Of this amount, Charlotte paid $7,000 with her own funds, her parents paid $14,000, and Charlotte's grandparents paid $9,000. Which of the following statements most accurately describes whether Charlotte's parents can claim a dependency exemption for Charlotte?

Accepted Answer

Because Charlotte is a full-time student and under 24 years of age she passes the age test of a qualifying chil

Question 14

All of the following represents a type or character of income except:

Accepted Answer

The types or characters of income include tax exempt, tax deferred, capital, ordinary, and qualified dividen

Question 15

Which of the following statements regarding exemptions is correct?

Accepted Answer

Taxpayers subtract exemption deductions from adjusted gross income in determining taxable income. Exemption amounts are considered to be from AGI deductions, not for AGI deductions. Personal and dependency exemptions have equal value and taxpayers filing a married filing joint return are permitted to claim exemptions for themselves and their dependents.

Question 16

All of the following are tests for determining qualifying child status except the _____.

Accepted Answer

Qualifying children must pass the relationship, age, support, and residence tests. There is no requirement relating to gross income for purposes of the qualifying child test.

Question 17

Which of the following shows the correct relationship among standard deduction amounts for the respective filing statuses?

Accepted Answer

The standard deduction for single and MFS taxpayers is half that of MFJ taxpayers.

Question 18

Which of the following statements regarding personal and dependency exemptions is true?

Accepted Answer

The individual must be either a qualifying child or a qualifying relative of another to be a dependent of that person.

Question 19

All of the following are for AGI deductions except:

Accepted Answer

Charitable contributions are from AGI deductions.

Question 20

Which of the following statements regarding for AGI tax deductions is true?

Accepted Answer

Taxpayers subtract for AGI deductions from gross income to determine adjusted gross incom

Quiz 4: Individual Income Tax Overview, Exemptions, and Filing Status