FUNDAMENTALS OF TAXATION FOR
INDIVIDUALS A PRACTICAL APPROACH
CERTIFICATION EVALUATION 2026 STUDY
GUIDE QUESTIONS AND ANSWERS
◉ What is the relationship between tax planning and maximizing
net profit?
Answer: Effective tax planning aims to enhance net profit by
minimizing tax liabilities.
◉ What is the impact of marginal tax rates on tax savings?
Answer: Higher marginal tax rates can lead to greater tax savings
from deductions.
◉ What is an open transaction in tax work?
Answer: An open transaction is one that is not yet completed,
allowing tax professionals to consider various options for
structuring the transaction for optimal tax results.
◉ What is a closed transaction in tax work?
,Answer: A closed transaction is one where relevant events have
already occurred, and the tax professional determines how tax law
applies to the established facts.
◉ What is the marginal tax rate?
Answer: The marginal tax rate is the tax rate applied to the next
additional dollar of income earned.
◉ How many tax brackets exist for individual taxpayers in the US?
Answer: There are 7 different tax brackets: 10%, 12%, 22%, 24%,
32%, 35%, and 37%.
◉ What is the average tax rate?
Answer: The average tax rate is the total income tax divided by
taxable income, indicating the percentage of total income paid in
income tax.
◉ What is the effective tax rate?
Answer: The effective tax rate is the total income tax divided by total
income, including all economic income earned by the taxpayer.
◉ What tax rate did the Tax Foundation report for individuals in
2020?
, Answer: The average federal tax rate for individuals in 2020 was
13.63%.
◉ What tax planning opportunity arises when marginal tax rates
change across time periods?
Answer: If rates are increasing in the future, it is best to accelerate
income and defer deductions; if rates are decreasing, accelerate
deductions and defer income.
◉ Which states do not tax earned income?
Answer: Alaska, Florida, Nevada, New Hampshire, South Dakota,
Tennessee, Texas, Washington, and Wyoming.
◉ What are the three states with the highest individual marginal
income tax rates?
Answer: California (14.4%), Hawaii (11%), and New York (10.9%).
◉ Why do tax professionals seek to convert ordinary income into
long-term capital gains?
Answer: Tax rates on ordinary income are often higher than those on
long-term capital gains, providing tax planning opportunities.
◉ What is the corporate tax rate in the US?
Answer: Corporate taxpayers pay a flat rate of 21% on their income.
INDIVIDUALS A PRACTICAL APPROACH
CERTIFICATION EVALUATION 2026 STUDY
GUIDE QUESTIONS AND ANSWERS
◉ What is the relationship between tax planning and maximizing
net profit?
Answer: Effective tax planning aims to enhance net profit by
minimizing tax liabilities.
◉ What is the impact of marginal tax rates on tax savings?
Answer: Higher marginal tax rates can lead to greater tax savings
from deductions.
◉ What is an open transaction in tax work?
Answer: An open transaction is one that is not yet completed,
allowing tax professionals to consider various options for
structuring the transaction for optimal tax results.
◉ What is a closed transaction in tax work?
,Answer: A closed transaction is one where relevant events have
already occurred, and the tax professional determines how tax law
applies to the established facts.
◉ What is the marginal tax rate?
Answer: The marginal tax rate is the tax rate applied to the next
additional dollar of income earned.
◉ How many tax brackets exist for individual taxpayers in the US?
Answer: There are 7 different tax brackets: 10%, 12%, 22%, 24%,
32%, 35%, and 37%.
◉ What is the average tax rate?
Answer: The average tax rate is the total income tax divided by
taxable income, indicating the percentage of total income paid in
income tax.
◉ What is the effective tax rate?
Answer: The effective tax rate is the total income tax divided by total
income, including all economic income earned by the taxpayer.
◉ What tax rate did the Tax Foundation report for individuals in
2020?
, Answer: The average federal tax rate for individuals in 2020 was
13.63%.
◉ What tax planning opportunity arises when marginal tax rates
change across time periods?
Answer: If rates are increasing in the future, it is best to accelerate
income and defer deductions; if rates are decreasing, accelerate
deductions and defer income.
◉ Which states do not tax earned income?
Answer: Alaska, Florida, Nevada, New Hampshire, South Dakota,
Tennessee, Texas, Washington, and Wyoming.
◉ What are the three states with the highest individual marginal
income tax rates?
Answer: California (14.4%), Hawaii (11%), and New York (10.9%).
◉ Why do tax professionals seek to convert ordinary income into
long-term capital gains?
Answer: Tax rates on ordinary income are often higher than those on
long-term capital gains, providing tax planning opportunities.
◉ What is the corporate tax rate in the US?
Answer: Corporate taxpayers pay a flat rate of 21% on their income.
