TAX EXAM 2 ACTUAL 2025/2026 QUESTIONS AND 100% CORRECT ANSWERS

TAX EXAM 2 ACTUAL 2025/2026 QUESTIONS AND 100% CORRECT ANSWERS Jack and Jill are married. This year Jack earned $81,000 and Jill earned $89,000 and they received $5800 of interest income from a joint savings account. How much gross income would Jack report if he files married filing separately from Jill? - Answer -$87,900 if they reside in a community property state In a community property state Jack is taxed on half of his separate income ($40,500) plus half of Jill's separate income ($44,500) plus half of joint income ($2,900). In a common-law state, Jack is taxed on his separate income ($81,000) plus half of joint income ($2,900). Opal deducted $2,420 of state income taxes on her tax return last year. This year she received a state income tax refund of $190. What amount of the refund, if any, should Opal include in her gross income if last year her total itemized deductions exceeded the standard deduction by $360? - Answer -$190 Refund amounts are included in gross income only to the extent that the original deduction provided a tax benefit. The $2,420 of deductionproduced a tax benefit of $360, so the entire $190 is included in income. Maren received 10 NQOs (each option gives her the right to purchase 10 shares of stock for $8 per share) at the time she started working, when the stock price was $7 per share. When the share price was $14 per share, she exercised all of her options. Eighteen months later she sold all of the shares for $20 per share. What is the amount of Maren's bargain element? - Answer -$600 10 options × 10 shares × ($14 market price at exercise − $8 exercise price). Fran purchased an annuity that provides $13,400 quarterly payments for the next 12 years. The annuity was purchased at a cost of $393,600. How much of the first quarterly payment will Fran include in her gross income? - Answer -$5,200 The annuity exclusion ratio is [$393,600/(4 × 12)] = $8,200 return of capital per payment. Hence, $5,200 of each $13,400 payment is included in gross income. Rhett made his annual gambling trip to Uwin Casino. On this trip Rhett won $440 at the slots and $1,390 at poker. Also this year, Rhett made several trips to the racetrack, but he lost $795 on his various wagers. What amount must Rhett include in his gross income? - Answer -$1830Taxpayers must include the gross amount of their gambling winnings for the year in gross income. Bernie is a former executive who is retired. This year Bernie received $264,000 in pension payments and $24,000 of Social Security payments. What amount must Bernie include in his gross income? - Answer -$284,400 High-income individuals include 85 percent of their Social Security benefits in gross income. Mike received the following interest payments this year. What amount must Mike include in his gross income (for federal tax purposes)? Bonds Interest