Individual income Tax - Exemptions, Credits, & Deductions Flashcards - CPA Regulation (REG)

Question

Which of the following credits can result in a refund even if the individual had no income tax liability?

Answer

“Refundable” tax credits are allowable in excess of a taxpayer’s tax obligation and may result in a refund. Among the possible answers, only the earned income credit is “refundable.” While the other answers may result in reducing a tax obligation to zero, they may not be taken in excess of this to result in a tax refund in a given year.

Compare your answer with the correct one above

Question

How may taxes paid by an individual to a foreign country be treated?

Answer

Generally speaking, taxes paid to foreign entities result in a dollar-for-dollar reduction in the US tax obligation (a credit), rather than a reduction of taxable income (a deduction).

Compare your answer with the correct one above

Question

Ron and Leslie have two children, ages 7 and 9. Both children meet the definition of qualifying child. The family has adjusted gross income of $325,000. What is the amount of the child tax credit on the couple’s income tax return?

Answer

The child tax credit is worth up to $2,000 for children classified as dependents who are under age 17 as of the last day of the tax year. The credit phases out starting at $200,000 for single filers, and $400,000 for joint filers.

Compare your answer with the correct one above

Question

Of the following, which credit can result in a refund even if the individual had no income tax liability?

Answer

The earned income credit is refundable. Eligible taxpayers can get advance payments from their employers because the credit is assured.

Compare your answer with the correct one above

Question

How many taxes paid by an individual to a foreign country be treated?

Answer

A taxpayer may claim a credit against federal income taxes due for foreign income taxes paid to a foreign country or a US possession. There is a limitation on the amount of the credit an individual can obtain.

Compare your answer with the correct one above

Question

Of the following, which is a valid tax credit in the United States under the IRS?

Answer

Only the Earned income credit is a real credit. The others are made up of credits.

Compare your answer with the correct one above

Question

Which of the following amounts represents an adjustment to adjusted gross income (AGI) for the current tax year?

Answer

For a divorce finalized on or before Dec. 31, 2018, alimony received is included in gross income. For divorces finalized after this date, alimony is not included in gross income. All other items are regularly excluded from AGI.

Compare your answer with the correct one above

Question

The self-employment tax is:

Answer

Self-employment tax is only partially deductible (50%), and is calculated as part of determining AGI.

Compare your answer with the correct one above

Question

Which of the following is not a deduction to arrive at adjusted gross income?

Answer

Mortgage interest is only included as a deduction, or a “below the line” reduction of a tax liability. All of the others are “above the line” reductions of AGI, prior to the standard or itemized deduction.

Compare your answer with the correct one above

Question

The self employment tax is:

Answer

One half of the self-employment tax is deductible to arrive at adjusted gross income. These other options are partially or not deductible.

Compare your answer with the correct one above

Question

Of the following, which is not an adjustment to arrive at adjusted gross income?

Answer

The qualified mortgage interest paid is deductible on Sch A as an itemized deduction.

Compare your answer with the correct one above

Question

Based on the TCJA of 2017, which statement is correct? Included in taxable gross income is:

Answer

Child support no matter what year is not included in AGI. Alimony received based on an agreement on or before 12/31/2018 would be included.

Compare your answer with the correct one above

Question

CBI Foundation awarded Karen $65,000 in recognition of lifelong scholarly achievement. Karen was not required to render future services as a condition to receive the $65,000. What condition(s) must have been met for the award to be excluded from Karen’s gross income?

I. Karen was selected for the award by CBI without any action on Karen’s part.
II. Pursuant to Karen’s designation, CBI paid the amount of the award either to a governmental unit or to a charitable organization.

Answer

Prizes and awards may be excluded from taxable income, provided (1) the recipient took no action to be selected for the award, and (2) the award is assigned directly to a governmental unit or charitable organization.

Compare your answer with the correct one above

Question

Kent bought Series EE U.S. Savings Bonds after 1989. Redemption proceeds will be used for payment of college tuition for Kent’s dependent child. One of the conditions that must be met for the exemption of accumulated interest on these bonds is that the:

Answer

Series EE Bonds issued after 1989 are must meet several criteria for interest to be tax-exempt: (a) the interest must be used to pay for tuition of the taxpayer, spouse, or dependents; (b) the taxpayer is over age 24 when the bond is issued; (c) a married taxpayer files a joint return; and (d) the taxpayer meets certain income requirements. The bond must be in the taxpayer’s and/or spouse’s name; a child/dependent may only be a beneficiary, not an owner.

Compare your answer with the correct one above

Question

Lois did not itemize deductions on her Year 9 federal income tax return. In July Year 10, Lois received a state income tax refund of $850 plus interest of $15 for overpayment of Year 9 state income tax. What amount of the state tax refund and interest is tax-exempt on Lois’s Year 10 federal income tax return?

Answer

If an individual did not deduct state or local tax paid in a prior year, then the receipt of a state or local tax refund is also not taxable. Interest income on the refund, however, is taxable.

Compare your answer with the correct one above

Question

Of the following exempt organizations must file annual information returns?

Answer

Private foundations must file annual information returns. Exempt are churches, religious activities, and certain organizations that normally have annual gross receipts of $50,000 or less.

Compare your answer with the correct one above

Question

The private foundation status of an exempt organization will terminate if it:

Answer

The private foundation status of an exempt organization will terminate if it becomes a public charity. Not included in exempt status are public safety organizations, supporting organization, broadly publicly supported organizations, and max 60% charitable deduction donees.

Compare your answer with the correct one above

Question

Of the following items, which would cause a permanent book to tax difference?

Answer

A deferred asset or liability, as well as a different depreciation method from book accounting, would create a temporary difference in book to tax income, whereas municipal bond income is a permanent difference.

Compare your answer with the correct one above

Tap the card to reveal the answer

Individual income Tax - Exemptions, Credits, & Deductions - CPA Regulation (REG)

Which of the following credits can result in a refund even if the individual had no income tax liability?

How may taxes paid by an individual to a foreign country be treated?

Generally speaking, taxes paid to foreign entities result in a dollar-for-dollar reduction in the US tax obligation (a credit), rather than a reduction of taxable income (a deduction).

Ron and Leslie have two children, ages 7 and 9. Both children meet the definition of qualifying child. The family has adjusted gross income of $325,000. What is the amount of the child tax credit on the couple’s income tax return?

The child tax credit is worth up to $2,000 for children classified as dependents who are under age 17 as of the last day of the tax year. The credit phases out starting at $200,000 for single filers, and $400,000 for joint filers.

Of the following, which credit can result in a refund even if the individual had no income tax liability?

The earned income credit is refundable. Eligible taxpayers can get advance payments from their employers because the credit is assured.

How many taxes paid by an individual to a foreign country be treated?

A taxpayer may claim a credit against federal income taxes due for foreign income taxes paid to a foreign country or a US possession. There is a limitation on the amount of the credit an individual can obtain.

Of the following, which is a valid tax credit in the United States under the IRS?

Only the Earned income credit is a real credit. The others are made up of credits.

Which of the following amounts represents an adjustment to adjusted gross income (AGI) for the current tax year?

For a divorce finalized on or before Dec. 31, 2018, alimony received is included in gross income. For divorces finalized after this date, alimony is not included in gross income. All other items are regularly excluded from AGI.

The self-employment tax is:

Self-employment tax is only partially deductible (50%), and is calculated as part of determining AGI.

Which of the following is not a deduction to arrive at adjusted gross income?

Mortgage interest is only included as a deduction, or a “below the line” reduction of a tax liability. All of the others are “above the line” reductions of AGI, prior to the standard or itemized deduction.

The self employment tax is:

One half of the self-employment tax is deductible to arrive at adjusted gross income. These other options are partially or not deductible.

Of the following, which is not an adjustment to arrive at adjusted gross income?

The qualified mortgage interest paid is deductible on Sch A as an itemized deduction.

Based on the TCJA of 2017, which statement is correct? Included in taxable gross income is:

Child support no matter what year is not included in AGI. Alimony received based on an agreement on or before 12/31/2018 would be included.

Prizes and awards may be excluded from taxable income, provided (1) the recipient took no action to be selected for the award, and (2) the award is assigned directly to a governmental unit or charitable organization.

Kent bought Series EE U.S. Savings Bonds after 1989. Redemption proceeds will be used for payment of college tuition for Kent’s dependent child. One of the conditions that must be met for the exemption of accumulated interest on these bonds is that the:

If an individual did not deduct state or local tax paid in a prior year, then the receipt of a state or local tax refund is also not taxable. Interest income on the refund, however, is taxable.

Of the following exempt organizations must file annual information returns?

Private foundations must file annual information returns. Exempt are churches, religious activities, and certain organizations that normally have annual gross receipts of $50,000 or less.

The private foundation status of an exempt organization will terminate if it:

The private foundation status of an exempt organization will terminate if it becomes a public charity. Not included in exempt status are public safety organizations, supporting organization, broadly publicly supported organizations, and max 60% charitable deduction donees.

Of the following items, which would cause a permanent book to tax difference?

A deferred asset or liability, as well as a different depreciation method from book accounting, would create a temporary difference in book to tax income, whereas municipal bond income is a permanent difference.