Federal Income Tax: Master Taxable Income, Deductions, Credits, and Rates

Question 1

Which of the following is a tax credit?

Accepted Answer

Child tax credit

Answer

Standard deduction

Answer

Itemized deduction

Answer

Exemption

Question 2

What is the primary purpose of Form 1040?

Accepted Answer

To file your federal income tax return

Answer

To request a tax refund

Answer

To make estimated tax payments

Answer

To claim a tax exemption

Question 3

Which of the following is an example of a progressive tax system?

Accepted Answer

A system where tax rates increase as income increases

Answer

A system where tax rates decrease as income increases

Answer

A system where tax rates are the same for all income levels

Answer

A system where tax rates fluctuate based on economic indicators

Question 4

Which of the following is not a legal tax avoidance technique?

Accepted Answer

Tax fraud

Answer

Tax evasion

Answer

Tax sheltering

Answer

Tax optimization

Question 5

What is the main objective of an IRS audit?

Accepted Answer

To ensure compliance with tax laws

Answer

To collect additional taxes from taxpayers

Answer

To punish taxpayers for making mistakes

Answer

To provide tax advice to taxpayers

Question 6

Which tax form is used by individuals to report their federal income taxes?

Accepted Answer

Form 1040

Answer

Form W-2

Answer

Form 1099-MISC

Answer

Form W-4

Question 7

Which of the following is NOT a withholding agent responsible for collecting federal income taxes?

Accepted Answer

Investment firms

Answer

Employers

Answer

Banks

Answer

Insurance companies

Question 8

Which of the following is not a deductible expense in Federal Income Taxation?

Accepted Answer

Personal expenditures

Answer

Standard deduction

Answer

Mortgage interest

Answer

Business expenses

Question 9

What is the official tax form for filing individual income taxes?

Accepted Answer

Form 1040

Answer

Form W-2

Answer

Form 1099-MISC

Answer

Form 941

Question 10

Explain the key difference between a tax credit and a tax deduction.

Accepted Answer

Credits directly reduce tax liability, while deductions reduce taxable income.

Answer

Deductions directly reduce tax liability, while credits reduce taxable income.

Answer

Both credits and deductions directly reduce tax liability.

Answer

There is no difference between credits and deductions.

Question 11

What is a characteristic of a progressive tax system?

Accepted Answer

Higher earners pay a higher percentage of taxes.

Answer

All earners pay the same flat tax rate.

Answer

Lower earners pay a higher percentage of taxes.

Answer

Taxes are only levied on businesses.

Question 12

What is the term for the net income subject to taxation?

Accepted Answer

Taxable income

Answer

Adjusted gross income

Answer

Gross income

Answer

Investment income

Question 13

Provide an example of a nonrefundable tax credit.

Accepted Answer

Foreign tax credit

Answer

Child tax credit

Answer

Earned income credit

Answer

American opportunity tax credit

Question 14

What is the purpose of a dependent exemption?

Accepted Answer

To reduce taxable income by a specific amount for each dependent

Answer

To increase tax liability by a specific amount for each dependent

Answer

To qualify for certain tax deductions

Answer

To claim additional tax credits

Question 15

Which of the following is considered an employment tax?

Accepted Answer

Social Security tax

Answer

Federal income tax

Answer

State income tax

Answer

Property tax

Question 16

What is the standard deduction amount for a single taxpayer filing in 2023?

Accepted Answer

$12,950

Answer

$12,200

Answer

$13,850

Answer

$14,500

Question 17

Which type of tax credit can reduce your tax liability below zero, resulting in a refund from the government?

Accepted Answer

Refundable

Answer

Non-refundable

Question 18

Which of the following is NOT considered taxable income under federal tax law?

Accepted Answer

Unrealized capital gains

Answer

Wages and salaries

Answer

Interest earned on savings accounts

Answer

Rental property income

Question 19

Which of the following expenses is eligible for the Earned Income Tax Credit?

Accepted Answer

Childcare expenses

Answer

Mortgage interest payments

Answer

Charitable donations

Answer

Investment losses

Question 20

For an individual earning $45,000 in 2023, what is the applicable marginal tax rate?

Accepted Answer

12%

Answer

10%

Answer

22%

Answer

24%

Question 21

Which IRS form is used by individuals to file their annual income tax returns?

Accepted Answer

Form 1040

Answer

Form 1040-NR

Answer

Form W-2

Answer

Form 1099-INT

Question 22

In the United States, what is the filing deadline for federal income tax returns?

Accepted Answer

April 15

Answer

March 15

Answer

May 15

Answer

June 15

Question 23

What is the primary purpose of Form W-4?

Accepted Answer

To adjust withholding allowances

Answer

To claim dependents

Answer

To report investment income

Answer

To file for a tax refund

Question 24

Which of the following forms is used to report miscellaneous income received by self-employed individuals or independent contractors?

Accepted Answer

Form 1099-MISC

Answer

Form 1040

Answer

Form W-2

Answer

Form 1099-INT

Question 25

In tax accounting, which principle sets it apart from financial accounting?

Accepted Answer

Tax laws dictate when transactions are recognized

Answer

Expenses are matched to their related revenue

Answer

Immaterial items are considered insignificant

Answer

Businesses are assumed to continue operating indefinitely

Question 26

Which of the following is NOT considered taxable income for individuals in the United States?

Accepted Answer

Social Security retirement benefits

Answer

Wages and salaries

Answer

Interest

Answer

Dividends

Question 27

What is the primary purpose of a tax credit?

Accepted Answer

To directly reduce the amount of tax owed

Answer

To increase the amount of deductions available

Answer

To lower the overall tax rate

Answer

To eliminate the need to file a tax return

Question 28

What is the filing deadline for most federal income tax returns?

Accepted Answer

April 15th

Answer

March 15th

Answer

May 15th

Answer

June 15th

Question 29

Which standard deduction is available to all taxpayers?

Accepted Answer

$13,850 for single filers, $27,700 for married couples filing jointly

Answer

Itemized deductions

Answer

Charitable contributions

Answer

Mortgage interest

Question 30

What is the primary purpose of a tax credit?

Accepted Answer

To reduce the amount of taxes owed

Answer

To increase the amount of taxes owed

Answer

To decrease taxable income

Answer

To increase taxable income

Question 31

Which type of income is subject to a flat tax rate of 20%?

Accepted Answer

Long-term capital gains and qualified dividends

Answer

Ordinary income

Answer

Rental property income

Answer

Interest income from municipal bonds

Question 32

Which federal agency is responsible for collecting income taxes in the United States?

Accepted Answer

Internal Revenue Service (IRS)

Answer

Department of the Treasury

Answer

Social Security Administration

Answer

Federal Reserve

Question 33

In Federal Income Taxation, how does the Internal Revenue Service (IRS) define 'taxable income'?

Accepted Answer

Gross income minus allowable deductions

Answer

Adjusted gross income plus itemized deductions

Answer

Gross income minus personal exemptions

Answer

Net income after all expenses

Question 34

Which of the following is NOT a deductible expense for federal income tax purposes?

Accepted Answer

Personal expenses

Answer

Mortgage interest (on your primary residence)

Answer

Business expenses related to a self-employed activity

Answer

Charitable contributions

Question 35

Which of the following is NOT a tax credit?

Accepted Answer

Itemized deduction

Answer

Adoption Tax Credit

Answer

Earned Income Tax Credit

Answer

Child Tax Credit

Question 36

Which of the following forms is used to file federal income taxes?

Accepted Answer

Form 1040

Answer

Form W-2

Answer

Form 1099-MISC

Answer

Form 1099-INT

Question 37

Which of the following is a type of retirement account that offers tax-free growth?

Accepted Answer

Roth IRA

Answer

Traditional IRA

Answer

529 Plan

Answer

401(k)

Question 38

What is the primary purpose of an itemized deduction?

Accepted Answer

To reduce taxable income by specific allowable expenses

Answer

To calculate the tax liability

Answer

To increase taxable income

Question 39

Which of the following individuals is considered a dependent for tax purposes?

Accepted Answer

A child under the age of 19 who lives with the taxpayer

Answer

A friend who helps with household chores

Answer

A spouse who earns more than the taxpayer

Question 40

Which of the following is **not** considered taxable income for federal income tax purposes?

Accepted Answer

Gifts received from a relative

Answer

Interest income

Answer

Business profits

Answer

Wages and salaries

Question 41

For individual taxpayers, itemized deductions are typically more beneficial for those with:

Accepted Answer

High medical expenses or charitable contributions

Answer

Low income

Answer

Standard deductions

Answer

No dependents

Question 42

Self-employment income is subject to both income tax and:

Accepted Answer

Self-employment (SE) tax

Answer

Excise tax

Answer

Sales tax

Answer

Property tax

Question 43

The typical due date for filing individual income tax returns is:

Accepted Answer

April 15th

Answer

January 15th

Answer

March 15th

Answer

December 31st

Question 44

Which of the following penalties may be imposed by the IRS for filing a tax return late?

Accepted Answer

Failure to file penalty

Answer

Accuracy-related penalty

Answer

Estimated tax penalty

Answer

Fraud penalty

Question 45

The Internal Revenue Code (IRC) is primarily a:

Accepted Answer

Codification of federal tax laws

Answer

Guideline for tax professionals

Answer

Collection of court decisions interpreting tax laws

Answer

Set of regulations issued by the IRS

Question 46

A taxpayer's adjusted gross income (AGI) is $75,000. Their standard deduction is $12,550, and they have itemized deductions totaling $15,000. What is their taxable income?

Accepted Answer

$57,450

Answer

$62,450

Answer

$60,000

Question 47

Which of the following is NOT a common deduction for individual taxpayers?

Accepted Answer

Cost of living expenses

Answer

State and local taxes

Answer

Charitable contributions

Answer

Mortgage interest

Question 48

What is the purpose of the standard deduction?

Accepted Answer

It allows taxpayers to deduct a specific amount of expenses without itemizing them.

Answer

It exempts taxpayers from paying taxes.

Answer

It only applies to taxpayers with low incomes.

Question 49

Which of the following is an example of a tax credit?

Accepted Answer

Child Tax Credit

Answer

Mortgage interest

Answer

Charitable contributions

Answer

State income tax

Question 50

How does a tax credit differ from a tax deduction?

Accepted Answer

Tax credits reduce taxes dollar-for-dollar, while deductions reduce taxable income.

Answer

Tax credits are only available for low-income taxpayers.

Answer

Tax credits are more beneficial than deductions in all cases.

Question 51

A taxpayer earns $100,000 in salary, $10,000 in investment income, and $5,000 in capital gains. What is their total gross income?

Accepted Answer

$115,000

Answer

$100,000

Answer

$105,000

Answer

$110,000

Question 52

What does it mean when a taxpayer receives a refund from the IRS?

Accepted Answer

They overpaid their taxes during the year.

Answer

They owe additional taxes.

Answer

They have not paid any taxes.