INCOME TAX MIDTERM QUESTIONS
AND ANSWERS WITH VERIFIED
SOLUTIONS 2024
*(Chapter 5)*
What are the three specific exceptions to not include awards in gross income - ANSWER First: awards for
scientific, literary, or charitable achievement such as the nobel Prize are excluded ONLY IF
1. the recipient was selected without any action on his part to enter the contest or proceeding
2. the recipient is not required to render substantial future services as a condition to receive the prize or
award
3. the payor of the prize or awards transfers the prize to a feder,state or local governmental unit or
qualified charity such as church, school, or charitable organization designated by the taxpayer
Second: awards for length of service or safety achievement.
Limited to one per employee per year to $400 of tangible property other than cash, cash equivalents, gift
cards, vacations, meals, lodging, tickets, stocks, bonds.
The award is not excluded from employees income if circumstances suggest it is disguised compensation
Third: Money (awards medals) or prizes received by Team USA from the US Olympic Committee on
account of competition in olympic or paralympic games. No limit but the exclusion does not apply to a
taxpayer for any year in which the taxpayer's AGI (after excluding award) exceeds 1mil (500,000 for
married filing separate)
*(Chapter 4)*
The tax base for income tax - ANSWER taxable income
,*(Chapter 4)*
Individuals file tax returns to report their taxable income to the _______ ____ _____ - ANSWER IRS
Internal Revenue service
*(Chapter 4)*
gross income means all income from whatever source derived - ANSWER All-inclusive income concept
*(Chapter 4)*
realized income - excluded and deferred income - ANSWER gross income
*(Chapter 4)*
income generated in a transaction with a second party in which there is a measurable change in property
rights between parties - ANSWER Realized income
*(Chapter 4)*
True or False:
Under the all inclusive income concept, gross income generally includes all realized income from
whatever source derived - ANSWER True
*(Chapter 4)*
What are excluded tax items - ANSWER excluded income items are things that are never taxable
*(Chapter 4)*
what are defer tax items - ANSWER deferred income items are included in gross income in the
subsequent year
*(Chapter 4)*
What are some examples of exclusions - ANSWER interest income from municipal bonds
gifts and inheritance
,Alimony received post 2018 decree
Gain on sale of personal residence
Life insurance proceeds
*(Chapter 4)*
What are some deferral examples - ANSWER Installment sale
Like-kind exchange
*(Chapter 4)*
a type of income that is treated differently for tax purposes from other types of income. - ANSWER
Character of income
*(Chapter 4)*
What are some examples of characters of income - ANSWER ordinary
capital
qualified dividend
*(Chapter 4)*
This is a character of income that is taxed at the ordinary rates provided in the tax rate schedules or that
offsets income taxed at these rates - ANSWER ordinary
*(Chapter 4)*
This is a character of income, that are gains or losses on the disposition or sale of capital assets. -
ANSWER Capital
, *(Chapter 4)*
In general capital assets are all assets other than what - ANSWER AR from the sale of goods and services
Inventory and other assets held for sale in the ordinary course of business
Assets used in a trade or business including supplies
nonbusiness assets such as personal-use automobiles or personal residences
assets held for investment such as stocks and bonds
*(Chapter 4)*
Difference between long term and short term capital asset - ANSWER Long: when the taxpayer owns the
capital asset for more than one year before selling it
Short: taxpayer owns the asset for one year or less before selling it
*(Chapter 4)*
true or false:
A gain on a sale of the capital asset is generally not included in gross income - ANSWER False: A gain on a
sale of capital asset IS generally included in gross income
*(Chapter 4)*
What percent rate is a short term capital gain taxed at - ANSWER ordinary income rates
*(Chapter 4)*
What percent rate is a long term capital gain taxed at - ANSWER 0%
15%
20%
AND ANSWERS WITH VERIFIED
SOLUTIONS 2024
*(Chapter 5)*
What are the three specific exceptions to not include awards in gross income - ANSWER First: awards for
scientific, literary, or charitable achievement such as the nobel Prize are excluded ONLY IF
1. the recipient was selected without any action on his part to enter the contest or proceeding
2. the recipient is not required to render substantial future services as a condition to receive the prize or
award
3. the payor of the prize or awards transfers the prize to a feder,state or local governmental unit or
qualified charity such as church, school, or charitable organization designated by the taxpayer
Second: awards for length of service or safety achievement.
Limited to one per employee per year to $400 of tangible property other than cash, cash equivalents, gift
cards, vacations, meals, lodging, tickets, stocks, bonds.
The award is not excluded from employees income if circumstances suggest it is disguised compensation
Third: Money (awards medals) or prizes received by Team USA from the US Olympic Committee on
account of competition in olympic or paralympic games. No limit but the exclusion does not apply to a
taxpayer for any year in which the taxpayer's AGI (after excluding award) exceeds 1mil (500,000 for
married filing separate)
*(Chapter 4)*
The tax base for income tax - ANSWER taxable income
,*(Chapter 4)*
Individuals file tax returns to report their taxable income to the _______ ____ _____ - ANSWER IRS
Internal Revenue service
*(Chapter 4)*
gross income means all income from whatever source derived - ANSWER All-inclusive income concept
*(Chapter 4)*
realized income - excluded and deferred income - ANSWER gross income
*(Chapter 4)*
income generated in a transaction with a second party in which there is a measurable change in property
rights between parties - ANSWER Realized income
*(Chapter 4)*
True or False:
Under the all inclusive income concept, gross income generally includes all realized income from
whatever source derived - ANSWER True
*(Chapter 4)*
What are excluded tax items - ANSWER excluded income items are things that are never taxable
*(Chapter 4)*
what are defer tax items - ANSWER deferred income items are included in gross income in the
subsequent year
*(Chapter 4)*
What are some examples of exclusions - ANSWER interest income from municipal bonds
gifts and inheritance
,Alimony received post 2018 decree
Gain on sale of personal residence
Life insurance proceeds
*(Chapter 4)*
What are some deferral examples - ANSWER Installment sale
Like-kind exchange
*(Chapter 4)*
a type of income that is treated differently for tax purposes from other types of income. - ANSWER
Character of income
*(Chapter 4)*
What are some examples of characters of income - ANSWER ordinary
capital
qualified dividend
*(Chapter 4)*
This is a character of income that is taxed at the ordinary rates provided in the tax rate schedules or that
offsets income taxed at these rates - ANSWER ordinary
*(Chapter 4)*
This is a character of income, that are gains or losses on the disposition or sale of capital assets. -
ANSWER Capital
, *(Chapter 4)*
In general capital assets are all assets other than what - ANSWER AR from the sale of goods and services
Inventory and other assets held for sale in the ordinary course of business
Assets used in a trade or business including supplies
nonbusiness assets such as personal-use automobiles or personal residences
assets held for investment such as stocks and bonds
*(Chapter 4)*
Difference between long term and short term capital asset - ANSWER Long: when the taxpayer owns the
capital asset for more than one year before selling it
Short: taxpayer owns the asset for one year or less before selling it
*(Chapter 4)*
true or false:
A gain on a sale of the capital asset is generally not included in gross income - ANSWER False: A gain on a
sale of capital asset IS generally included in gross income
*(Chapter 4)*
What percent rate is a short term capital gain taxed at - ANSWER ordinary income rates
*(Chapter 4)*
What percent rate is a long term capital gain taxed at - ANSWER 0%
15%
20%
