WGU C237 TAXATION 1 FINAL PAPER 2025/2026
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Identify three conditions that must be met for income to be taxable - ✔✔Economic
benefit
Realization of Income
Recognition of Income
✔✔Identify the primary accounting methods for individual tax purposes - ✔✔cash
receipts and disbursements method
accrual method
hybrid method
✔✔Define gross income in accordance with IRC Sec 61a - ✔✔all income from whatever
source derived, including (but not limited to) the listed items of income. or income
reduced by exclusions
✔✔Explain tax planning strategies individuals can use to minimize their tax liabilities -
✔✔Shifting Income
Maximizing Itemized Deductions
MFJ vs MJS
Splitting Income
✔✔Identify terms that the IRS does not define as income - ✔✔Unrealized Income
Self-Help Income
Rented value use of personal property
Gross sale price of property
✔✔Identify various types of major statutory exclusions from gross income - ✔✔Gifts and
Inheritance
Life Insurance
Welfare
Certain scholarships
qualified adoption expenses
person injury payments
discharge from indebtedness
✔✔5 Identify the difference between a realized gain and a recognized gain -
✔✔Realized G/L - Amount Realized - Adjusted Basis
Recognized gain = amount actually reported on tax =< Realized gain
✔✔Cost basis - ✔✔Cash + FMV + Shipping, installation, insurance in transit
✔✔Gift Gain/Loss - ✔✔Basis = the donor's A/B
Gifts-generally carry donors basis
, Bequeth = on date of death
✔✔Gift Tax added to Donor's A/B - ✔✔= Gift tax paid x (FMV at time of give - Donor's
A/B)/ (Gift - Annual Exclusion)
✔✔Basiss for business purposes - ✔✔= lower of FMV on conversion or Owner's A/B
✔✔Calculate property basis - ✔✔Initial Basis + Capital additions - Capital recoveries =
Adjusted basis
✔✔All property is a capital asset except - ✔✔Inventory; Accts rcvable; supplies, letters;
copyrights;1231 assets
✔✔calculate the tax treatment of capital gains and losses - ✔✔3000 max moss per
year; excess carried forward
✔✔For AGI - ✔✔Above the line -page 1 of 1040
business deductions; moving expenses, IRA's; SE health insurance; teacher expenses;
1/2SE tax; alimony
✔✔From AGI - ✔✔Below the line; exemptions, greater of itemized deductions or
standard deduction
✔✔Identify examples of businesses and investment expense deductions - ✔✔-must be
because of profit motivated activity
-must be ordinary and necessary
-must show profit in 3 out of last 5 years
✔✔Lobbying and Political contributions - ✔✔not deductible; unless at the local level
when involved directly in the taxpayers business
✔✔Startup business - ✔✔Current ded = lessor of
Actual amounts spent or $5000 with phase out for amounts over $50,000. Rest must be
capitalized and amortized over 180 months starting in month business begins
✔✔explain the restrictions applied to expense deductions - ✔✔not allowed unless
specifically allowed
must meet criteria before an expenditure can be deducted (ex. medical threshold)
Overall limitation for wealthy taxpayers for itemized deductions
✔✔Capitalization vs expense - ✔✔must capitalize if:
1 Provides permanent improvement that increases value
2 Restores property to normal usage
Regular maintainence is a deduction
QUESTIONS AND ANSWERS GUARANTEE A+
✔✔Identify three conditions that must be met for income to be taxable - ✔✔Economic
benefit
Realization of Income
Recognition of Income
✔✔Identify the primary accounting methods for individual tax purposes - ✔✔cash
receipts and disbursements method
accrual method
hybrid method
✔✔Define gross income in accordance with IRC Sec 61a - ✔✔all income from whatever
source derived, including (but not limited to) the listed items of income. or income
reduced by exclusions
✔✔Explain tax planning strategies individuals can use to minimize their tax liabilities -
✔✔Shifting Income
Maximizing Itemized Deductions
MFJ vs MJS
Splitting Income
✔✔Identify terms that the IRS does not define as income - ✔✔Unrealized Income
Self-Help Income
Rented value use of personal property
Gross sale price of property
✔✔Identify various types of major statutory exclusions from gross income - ✔✔Gifts and
Inheritance
Life Insurance
Welfare
Certain scholarships
qualified adoption expenses
person injury payments
discharge from indebtedness
✔✔5 Identify the difference between a realized gain and a recognized gain -
✔✔Realized G/L - Amount Realized - Adjusted Basis
Recognized gain = amount actually reported on tax =< Realized gain
✔✔Cost basis - ✔✔Cash + FMV + Shipping, installation, insurance in transit
✔✔Gift Gain/Loss - ✔✔Basis = the donor's A/B
Gifts-generally carry donors basis
, Bequeth = on date of death
✔✔Gift Tax added to Donor's A/B - ✔✔= Gift tax paid x (FMV at time of give - Donor's
A/B)/ (Gift - Annual Exclusion)
✔✔Basiss for business purposes - ✔✔= lower of FMV on conversion or Owner's A/B
✔✔Calculate property basis - ✔✔Initial Basis + Capital additions - Capital recoveries =
Adjusted basis
✔✔All property is a capital asset except - ✔✔Inventory; Accts rcvable; supplies, letters;
copyrights;1231 assets
✔✔calculate the tax treatment of capital gains and losses - ✔✔3000 max moss per
year; excess carried forward
✔✔For AGI - ✔✔Above the line -page 1 of 1040
business deductions; moving expenses, IRA's; SE health insurance; teacher expenses;
1/2SE tax; alimony
✔✔From AGI - ✔✔Below the line; exemptions, greater of itemized deductions or
standard deduction
✔✔Identify examples of businesses and investment expense deductions - ✔✔-must be
because of profit motivated activity
-must be ordinary and necessary
-must show profit in 3 out of last 5 years
✔✔Lobbying and Political contributions - ✔✔not deductible; unless at the local level
when involved directly in the taxpayers business
✔✔Startup business - ✔✔Current ded = lessor of
Actual amounts spent or $5000 with phase out for amounts over $50,000. Rest must be
capitalized and amortized over 180 months starting in month business begins
✔✔explain the restrictions applied to expense deductions - ✔✔not allowed unless
specifically allowed
must meet criteria before an expenditure can be deducted (ex. medical threshold)
Overall limitation for wealthy taxpayers for itemized deductions
✔✔Capitalization vs expense - ✔✔must capitalize if:
1 Provides permanent improvement that increases value
2 Restores property to normal usage
Regular maintainence is a deduction
