Title: Comprehensive Revision Tests for Taxation 2025: Individual Income Taxes

Below is a set of original revision test questions (with detailed rationale for each
answer) covering topics you’d expect from a comprehensive treatment of U.S.
individual income taxation (chapters 1–20 as outlined in Taxation 2025:
Individual Income Taxes 48e by Young). You can review these questions and
explanations as a study aid. Once you’re satisfied, you can easily convert the
content into a PDF file using your favorite text editor or by running the provided
Python code snippet.


Revision Test: Taxation 2025 – Individual Income Taxes (48e)

Coverage: Chapters 1 to 20

Instructions:
Answer each question and review the rationale provided. The rationale explains key concepts and
reasoning behind each answer so that you can deepen your understanding of the material.



Question 1: Definition of Gross Income

Question: Define “gross income” as used in U.S. individual income taxation.
Rationale:
Gross income is the sum of all income from any source unless specifically excluded by law. This includes
wages, salaries, dividends, interest, rents, and other income types. It forms the starting point for
determining adjusted gross income (AGI) and, eventually, taxable income.



Question 2: Exclusions from Gross Income

Question: Which of the following is not included in gross income?
A) Wages
B) Interest on municipal bonds
C) Dividends
D) Rental income
Correct Answer: B) Interest on municipal bonds
Rationale:
Interest earned on municipal bonds is typically exempt from federal income tax. In contrast, wages,
dividends, and rental income are usually included in gross income, unless another specific exclusion
applies.



Question 3: Above-the-Line vs. Below-the-Line Deductions

, Question: Explain the difference between above-the-line deductions and below-the-line deductions in
computing taxable income.
Rationale:
Above-the-line deductions (e.g., IRA contributions, student loan interest) are subtracted from gross
income to determine AGI. In contrast, below-the-line deductions (either the standard deduction or
itemized deductions) are subtracted from AGI to arrive at taxable income. The separation is important
because certain credits and limitations apply based on AGI.



Question 4: Taxable Income Calculation

Question: Calculate taxable income for a taxpayer with the following:

 Gross Income: $80,000

 Above-the-Line Deductions: $5,000

 Standard Deduction: $12,400
Answer:

1. AGI = $80,000 – $5,000 = $75,000

2. Taxable Income = AGI – Standard Deduction = $75,000 – $12,400 = $62,600
Rationale:
First, reduce the gross income by above-the-line deductions to arrive at AGI. Then subtract the
standard (or itemized) deduction from AGI to find taxable income.



Question 5: Standard Deduction vs. Itemized Deductions

Question: What is the primary difference between claiming a standard deduction versus itemizing
deductions?
Rationale:
The standard deduction is a fixed amount determined by filing status and is available to most taxpayers.
Itemized deductions, however, require listing qualifying expenses (such as medical costs, mortgage
interest, and charitable contributions) and may exceed the standard deduction. Taxpayers choose the
method that results in a lower taxable income.



Question 6: Tax Credits

Question: Define a tax credit and explain its effect compared to a deduction.
Rationale:
A tax credit directly reduces the tax liability on a dollar-for-dollar basis. In contrast, a deduction reduces
taxable income. Because credits lower the actual amount of tax owed (not just the income subject to
tax), they are generally more valuable.