Income Tax Fundamentals (Actual) Exam Latest Updated

The Nature of Gross Income The definition of gross income in the tax law is: - ANSWER-CORRECT ANSWER D a.All items specifically listed as income in the tax law. b.All income from whatever source derived unless the income is earned illegally. c.All cash payments received for goods provided and services performed. d.All income from whatever source derived. The Nature of Gross Income Which of the following is not taxable for income tax purposes? - ANSWER-CORRECT ANSWER D a.Prizes. b.Severance pay. c.Partnership income. d.Gifts. e.All of these choices are taxable. The Nature of Gross Income All of the following items are taxable to the taxpayer receiving them, EXCEPT: - ANSWER-CORRECT ANSWER E a.Unemployment compensation. b.Embezzled funds. c.Prizes. d.Gambling winnings. e.Life insurance proceeds paid at death. Community Property Which of the following condition need NOT be satisfied in order for a married taxpayer, residing in a community property state, to be taxed only on his or her separate salary? - ANSWER-CORRECT ANSWER C a.The husband and wife must not transfer earned income between themselves. b.The husband and wife must not file a joint income tax return. c.A minor child must be living with the spouse. d.The husband and wife must live apart for the entire year. e.All of these choices must be satisfied. Community Property Dana and Larry are married and live in Texas. Dana earns a salary of $45,000 and Larry had $25,000 of rental income from his separate property. If Dana and Larry file separate tax returns, what amount of income must Larry report? - ANSWER-CORRECT ANSWER E a.$22,500 b.$0 c.$25,000 d.$47,500 e.None of these choices are correct. Social Security Benefits Generally, modified adjusted gross income (MAGI) is adjusted gross income (without Social Security benefits) - ANSWER-CORRECT ANSWER B a.Less tax-exempt interest. b.Plus tax-exempt interest income. c.Less itemized deductions. d.Less tax-exempt interest plus any foreign income exclusion. Social Security Benefits For 2019, the minimum percentage of Social Security benefits that could be included in a taxpayer's gross income is: - ANSWER-CORRECT ANSWER C a.50% b.85% c.0% d.75% e.25% Unemployment Compensation Alicia loses her job part way through 2019. Her employer pays her wages of $15,450 up through her date of termination. After that, she received $3,400 of unemployment compensation from the state until she gets a new job for which she is paid wages of $3,000 through year end. Based on this information, Alicia's gross income for 2019 is: - ANSWER-CORRECT ANSWER C a.$18,450