Test Bank & Solution Manual for McGraw Hill
s Essentials of Federal Taxation 2025
Evergreen Release By Brian Spilker, Benjamin
Ayers, John Robinson, Edmund Outslay,
Ronald Worsham, John Barrick
Chapter 1: Introduction to Federal Taxation
Q1. Which of the following is considered gross income under federal tax law?
A) Life insurance proceeds received due to the death of a spouse
B) Gifts received from a friend
C) Wages earned from employment
D) Child support payments
Answer: C) Wages earned from employment
Solution: Wages earned from employment are considered taxable gross income under
IRC §61. Gifts, life insurance proceeds from death, and child support are generally
excluded.
Q2. A taxpayer has a salary of $50,000 and receives $2,000 in municipal bond interest.
What is the taxpayer’s gross income?
A) $48,000
B) $50,000
C) $52,000
D) $0
Answer: B) $50,000
Solution: Municipal bond interest is generally tax-exempt. Only salary is included in
gross income.
,Q3. Which type of tax is proportional (flat rate)?
A) Income tax
B) Estate tax
C) Social Security tax
D) Sales tax in some states
Answer: D) Sales tax in some states
Solution: A proportional tax has a constant rate regardless of base. State sales tax is
often a fixed percentage, unlike income taxes, which are usually progressive.
Q4. Which is not deductible for federal income tax purposes?
A) Mortgage interest on a primary home
B) State income taxes
C) Personal medical expenses exceeding 7.5% of AGI
D) Commuting expenses to work
Answer: D) Commuting expenses to work
Solution: Commuting costs are considered personal expenses and are not deductible.
Q5. Which of the following taxpayers must file a federal income tax return?
A) Single, age 18, earned $14,000 in 2025
B) Single, age 20, earned $6,000 in 2025
C) Single, age 17, earned $14,000 in 2025
D) Single, age 25, earned $5,000 in 2025
Answer: A) Single, age 18, earned $14,000 in 2025
Solution: For 2025, single taxpayers under 65 must file if gross income exceeds the
standard deduction (~$13,850).
Q6. Taxpayers can claim a standard deduction unless they:
A) Are married
B) Itemize deductions
C) Have no dependents
D) Are over 65
Answer: B) Itemize deductions
,Solution: Taxpayers must choose between the standard deduction or itemizing; they
cannot do both.
Q7. Which of the following is subject to self-employment tax?
A) Wages from employer
B) Partnership income
C) Interest income
D) Municipal bond interest
Answer: B) Partnership income
Solution: Income from self-employment (including partnerships) is subject to
self-employment tax; wages are covered by payroll taxes, and interest is not.
Q8. Alimony paid under a divorce agreement executed in 2019 is:
A) Deductible by the payer
B) Taxable to the recipient
C) Deductible by both
D) Neither deductible nor taxable
Answer: A) Deductible by the payer
Solution: Under pre-2019 divorce rules, alimony is deductible by the payer and taxable to
the recipient.
Q9. Which of the following is a progressive tax?
A) Social Security tax
B) Estate tax
C) Federal income tax
D) Sales tax
Answer: C) Federal income tax
Solution: Progressive taxes increase in rate as the base increases; federal income tax
uses progressive brackets.
Q10. Which form is used by employees to report withholding allowances?
A) Form W-2
B) Form 1040
, C) Form W-4
D) Form 1099
Answer: C) Form W-4
Chapter 1–2: Introduction & Gross Income
Q11. Which of the following is included in gross income?
A) Life insurance proceeds paid due to the insured’s death
B) Employer-provided health insurance
C) Unemployment compensation
D) Gifts received from family
Answer: C) Unemployment compensation
Solution: Unemployment compensation is taxable under IRC §85. Life insurance
proceeds (death), gifts, and employer-provided health insurance are generally excluded.
Q12. A taxpayer receives $5,000 from a friend as a gift. How much is included in gross
income?
A) $0
B) $2,500
C) $5,000
D) $1,000
Answer: A) $0
Solution: Gifts are not included in gross income (IRC §102).
Q13. Which is taxable interest?
A) Municipal bonds
B) Corporate bonds
C) Series EE savings bonds used for qualified education
D) Gifts of cash
Answer: B) Corporate bonds
Solution: Interest from corporate bonds is taxable; municipal bond interest is usually
exempt. Series EE bonds may be tax-free if used for qualified education.
s Essentials of Federal Taxation 2025
Evergreen Release By Brian Spilker, Benjamin
Ayers, John Robinson, Edmund Outslay,
Ronald Worsham, John Barrick
Chapter 1: Introduction to Federal Taxation
Q1. Which of the following is considered gross income under federal tax law?
A) Life insurance proceeds received due to the death of a spouse
B) Gifts received from a friend
C) Wages earned from employment
D) Child support payments
Answer: C) Wages earned from employment
Solution: Wages earned from employment are considered taxable gross income under
IRC §61. Gifts, life insurance proceeds from death, and child support are generally
excluded.
Q2. A taxpayer has a salary of $50,000 and receives $2,000 in municipal bond interest.
What is the taxpayer’s gross income?
A) $48,000
B) $50,000
C) $52,000
D) $0
Answer: B) $50,000
Solution: Municipal bond interest is generally tax-exempt. Only salary is included in
gross income.
,Q3. Which type of tax is proportional (flat rate)?
A) Income tax
B) Estate tax
C) Social Security tax
D) Sales tax in some states
Answer: D) Sales tax in some states
Solution: A proportional tax has a constant rate regardless of base. State sales tax is
often a fixed percentage, unlike income taxes, which are usually progressive.
Q4. Which is not deductible for federal income tax purposes?
A) Mortgage interest on a primary home
B) State income taxes
C) Personal medical expenses exceeding 7.5% of AGI
D) Commuting expenses to work
Answer: D) Commuting expenses to work
Solution: Commuting costs are considered personal expenses and are not deductible.
Q5. Which of the following taxpayers must file a federal income tax return?
A) Single, age 18, earned $14,000 in 2025
B) Single, age 20, earned $6,000 in 2025
C) Single, age 17, earned $14,000 in 2025
D) Single, age 25, earned $5,000 in 2025
Answer: A) Single, age 18, earned $14,000 in 2025
Solution: For 2025, single taxpayers under 65 must file if gross income exceeds the
standard deduction (~$13,850).
Q6. Taxpayers can claim a standard deduction unless they:
A) Are married
B) Itemize deductions
C) Have no dependents
D) Are over 65
Answer: B) Itemize deductions
,Solution: Taxpayers must choose between the standard deduction or itemizing; they
cannot do both.
Q7. Which of the following is subject to self-employment tax?
A) Wages from employer
B) Partnership income
C) Interest income
D) Municipal bond interest
Answer: B) Partnership income
Solution: Income from self-employment (including partnerships) is subject to
self-employment tax; wages are covered by payroll taxes, and interest is not.
Q8. Alimony paid under a divorce agreement executed in 2019 is:
A) Deductible by the payer
B) Taxable to the recipient
C) Deductible by both
D) Neither deductible nor taxable
Answer: A) Deductible by the payer
Solution: Under pre-2019 divorce rules, alimony is deductible by the payer and taxable to
the recipient.
Q9. Which of the following is a progressive tax?
A) Social Security tax
B) Estate tax
C) Federal income tax
D) Sales tax
Answer: C) Federal income tax
Solution: Progressive taxes increase in rate as the base increases; federal income tax
uses progressive brackets.
Q10. Which form is used by employees to report withholding allowances?
A) Form W-2
B) Form 1040
, C) Form W-4
D) Form 1099
Answer: C) Form W-4
Chapter 1–2: Introduction & Gross Income
Q11. Which of the following is included in gross income?
A) Life insurance proceeds paid due to the insured’s death
B) Employer-provided health insurance
C) Unemployment compensation
D) Gifts received from family
Answer: C) Unemployment compensation
Solution: Unemployment compensation is taxable under IRC §85. Life insurance
proceeds (death), gifts, and employer-provided health insurance are generally excluded.
Q12. A taxpayer receives $5,000 from a friend as a gift. How much is included in gross
income?
A) $0
B) $2,500
C) $5,000
D) $1,000
Answer: A) $0
Solution: Gifts are not included in gross income (IRC §102).
Q13. Which is taxable interest?
A) Municipal bonds
B) Corporate bonds
C) Series EE savings bonds used for qualified education
D) Gifts of cash
Answer: B) Corporate bonds
Solution: Interest from corporate bonds is taxable; municipal bond interest is usually
exempt. Series EE bonds may be tax-free if used for qualified education.
