CPA reg exam QUESTIONS ANSWERS
Individual income tax formula - AnswerGross income
- adjustments
=adj gross income
- Standard or itemized deductions
- exemptions
=taxable income
*tax rate
=federal income tax (reg or amt)
- tax credits
Other taxes
- payments
= tax due or refund
Gross income - AnswerWages
Interest
Dividends
State tax refunds
Alimony received
Business income (schedule C)
Capital gain/loss (schedule D)
IRA income
Pension annuity
Rental income/loss
K-1 income/loss
Unemployment compensation
Social security benefits
Other income
Social security tax base is - Answera self-employed person's net profit from self-employment
,for employees, it is based on gross wages, employers also pay the tax
Adjustments - Answer"deductions to arrive at adjusted gross income"
Educator expenses
IRA
Student loan interest expenses
Tuition and fee deduction
Health savings account
Moving expenses
One half self employment taxes
Self employed insurance
Self employed retirement
Interest withdrawal penalty
Alimony paid
Attorney fees in rare cases
Domestic production activities deduction
Filing Status - AnswerDetermined by end of year status
Exceptions:
Divorced must not be joint.
Death of spouse can still be filed jointly
Qualifying widower - AnswerMust have had dependent with you the whole year to qualify
Birth or death during the year - AnswerStill get the full exemption.
head of household - AnswerMust have a dependent for more than half the year.
Dependent can be:
Qualifying child
Mother or father(nursing home is fine)
,Dependent relatives (must live with you)
Personal exemption - AnswerParents use your exemption then you lose it
Phase out of personal exemptions - AnswerExemptions reduced by 2% for every 2,500 over a certain
limit
Can a pet be a dependent - AnswerNEVER
Qualifying child (CARES) - AnswerClose relative
Age limit (19 or 24+ college)
Residency and filing requirement (1/2 year)
Eliminate gross income test
Support test changes (not more than one half of their own support)
Qualifying relative (SUPORT) - AnswerSupport (tax payer supplied over 50%) test
Under exemption amount of taxable (gross) income test
Precludes dependent filing a joint tax return test
Only citizens (resident of US/Canada or Mexico) test
Relative test or Taxpayer lives with individual for the whole year test
Multiple support agreement - Answer1 supporter gets full exemption but contribute more than 10%
of persons support
-all must be qualifying relatives that contribute cumulative more than 50% of the support of the
defendant
Increased standard deduction - AnswerAge 65 or older
Blind
Does not get an extra exemption
, Computation of income - AnswerTaxable =fmv income and fmv basis
Non taxable = no income and nbv basis
2 taxes on net business income - Answer1.Income Tax
2. Federal self-employment (SE) tax
as employee and employer you pay both
No deductible expenses on Schedule C - AnswerSalary to sole proprietor
Federal income tax
Personal portion of any expenses
Bad debt expense of cash basis
Charitable contributions
Schedule C deductions - Answerlegal commissions
travel
supplies
office and phone
(penalties and illegal commissions are not deductible)
Net taxable loss - Answer2 year carryback
20 year carryforward
Uniform Capitalization Rules (inventory) - AnswerProduced for use
Produced for sale
Acquired for resale
Schedule E - AnswerRental income or loss (passive activity)
Tax planning - AnswerDefer taxable income
Individual income tax formula - AnswerGross income
- adjustments
=adj gross income
- Standard or itemized deductions
- exemptions
=taxable income
*tax rate
=federal income tax (reg or amt)
- tax credits
Other taxes
- payments
= tax due or refund
Gross income - AnswerWages
Interest
Dividends
State tax refunds
Alimony received
Business income (schedule C)
Capital gain/loss (schedule D)
IRA income
Pension annuity
Rental income/loss
K-1 income/loss
Unemployment compensation
Social security benefits
Other income
Social security tax base is - Answera self-employed person's net profit from self-employment
,for employees, it is based on gross wages, employers also pay the tax
Adjustments - Answer"deductions to arrive at adjusted gross income"
Educator expenses
IRA
Student loan interest expenses
Tuition and fee deduction
Health savings account
Moving expenses
One half self employment taxes
Self employed insurance
Self employed retirement
Interest withdrawal penalty
Alimony paid
Attorney fees in rare cases
Domestic production activities deduction
Filing Status - AnswerDetermined by end of year status
Exceptions:
Divorced must not be joint.
Death of spouse can still be filed jointly
Qualifying widower - AnswerMust have had dependent with you the whole year to qualify
Birth or death during the year - AnswerStill get the full exemption.
head of household - AnswerMust have a dependent for more than half the year.
Dependent can be:
Qualifying child
Mother or father(nursing home is fine)
,Dependent relatives (must live with you)
Personal exemption - AnswerParents use your exemption then you lose it
Phase out of personal exemptions - AnswerExemptions reduced by 2% for every 2,500 over a certain
limit
Can a pet be a dependent - AnswerNEVER
Qualifying child (CARES) - AnswerClose relative
Age limit (19 or 24+ college)
Residency and filing requirement (1/2 year)
Eliminate gross income test
Support test changes (not more than one half of their own support)
Qualifying relative (SUPORT) - AnswerSupport (tax payer supplied over 50%) test
Under exemption amount of taxable (gross) income test
Precludes dependent filing a joint tax return test
Only citizens (resident of US/Canada or Mexico) test
Relative test or Taxpayer lives with individual for the whole year test
Multiple support agreement - Answer1 supporter gets full exemption but contribute more than 10%
of persons support
-all must be qualifying relatives that contribute cumulative more than 50% of the support of the
defendant
Increased standard deduction - AnswerAge 65 or older
Blind
Does not get an extra exemption
, Computation of income - AnswerTaxable =fmv income and fmv basis
Non taxable = no income and nbv basis
2 taxes on net business income - Answer1.Income Tax
2. Federal self-employment (SE) tax
as employee and employer you pay both
No deductible expenses on Schedule C - AnswerSalary to sole proprietor
Federal income tax
Personal portion of any expenses
Bad debt expense of cash basis
Charitable contributions
Schedule C deductions - Answerlegal commissions
travel
supplies
office and phone
(penalties and illegal commissions are not deductible)
Net taxable loss - Answer2 year carryback
20 year carryforward
Uniform Capitalization Rules (inventory) - AnswerProduced for use
Produced for sale
Acquired for resale
Schedule E - AnswerRental income or loss (passive activity)
Tax planning - AnswerDefer taxable income
