Question

Gross Tax computed is $ 15,845 and Credits and Prepayments are $ 23875. The result is?

Net Tax Payable $ 39,720

Refund Due $ 39,720

Net Tax Payable $ 8,030

Refund Due $ 8,030

Which of the following is true?

Taxable Income – Tax Rate = Gross Tax

Taxable Income X Tax Rate = Gross Tax

Taxable Income + Tax Rate = Gross Tax

Taxable Income /Tax Rate = Gross Tax

Deductions from Adjusted Gross Income include?

Greater of itemized deductions or standard deductions

Credit and prepayments

Exclusions

Tax Rate

Standard deductions should be used when?

Standard Deductions > Itemized Deductions

Standard Deductions < Itemized Deductions

Standard Deductions = Itemized Deductions

Standard Deductions ≥ Itemized Deductions

Long term capital gain is held for?

Less than 12 months

Less than 24 months

Over 12 months

Over 24 months

Net long-term gain

Is taxed at the same rate as other income?

Is taxed at minimum of 15 %

Is taxed at maximum of 15%

Is taxed at 10 %

Wealth that flows to individuals is income as per?

Economic Concept

Accounting Concept

Tax Concept

None of the above

Which of the following condition make income taxable?

Economic benefit to taxpayer

Income must be realized

Income must be recognized

All the above

Economic concept of income lack

Subjectivity

Objectivity

Neutrality

None of the above

Which of the following is not true?

Gross income is not limited to cash

Items indirectly benefitting taxpayers are included in gross income

Community property states that all income deemed to be earned equally by spouses except income from separate property

Unearned income of minor under 24 may be taxed at parent’s higher rate

Answer 1

1. Net tax payable = Gross Tax - Tax credits - Prepayments

= $15845 - $23875 = -$8030

Therefor $8030 is refund due

Answer is d)

2. Tax rate is the percent of income that has to be deducted as tax

Thus if 25% is tax rate

Tax payable would be = Taxable income * tax rate (i.e. 25/100)

The correct option is b

3. Option a) is correct

Deductions from Adjusted Gross income are below the line deductions and includes the greater of itemized deductions (which is based on expenses) or standard deduction which is a flat amount allowed to deduct that varies based on filing status

Exclusions , tax credits , prepyaments etc are above the line adjustments

4. Option 4

You should prefer standard deduction over itemize deductions when

Standard deduction ≥ Itemized deduction.

Because standard deduction is a flat dollar no question asked deduction it should be preferred when both standard and itemized deduction are equal.

and when its more than the itemized deduction

5. Correct option is c

Long term capital gains have to be held for more tha 1 year / 12 months to be considered long term

6. Correct option is c

Net long term gains are taxed at a maximum of 15% rate according to Topic 409 of IRS

7. Correct answer is d)

According to IRS the gross income means all income from whichever source derived, including (but not limited to) the following items:

(1) Compensatopm for service, fees, commissions, fringe benefits etc

(2) Income derived from business

(3) Gains from property dealing

(4) Interest

(5) Rental income

(6) Royalties

(7) Dividend etc

Thus correct answer is c) as tax concept includes wealth transfers as income

8 IRS considers recognized income for taxable income purposes

Thus correct answer is c)

However realized income is used for tax deductions

eg: on sale of asset, you recognize the gain which is taxed. However the cost to make that sale is part of realized income and used to claim deductions

9. Economic concept of income lacks objectivity as it takes into account unrealized gains/losses aswell. even if you don't sell an asset which has appreciated. It will include the appreciated vaue as unrealized gains, irrespective of the fact you may or may not realize those gains

Correct answer c)

10. Correct answer is b )

Items indirectly benefitting taxpayers are not included in gross income of one's tax calculations.

Only benefits that are direct in nature are included