Tax 2 Exam 2023/2024 Test Questions
With Correct Answers Given
Character of income - Answer a type of income that is treated differently for tax purposes from other types of income. Common income characters (or types of income) include ordinary, capital, and qualified dividend.
Preferential tax rate - Answer a tax rate that is lower than the tax rate applied to ordinary income.
Preferentially taxed income - Answer income taxed at a preferential tax rate such as long-term capital gains and qualified dividends.
Deductions - Answer amounts that are subtracted from gross income in calculating taxable income.
Taxable income - Answer is the tax base for the income tax
Adjusted gross income (AGI) - Answer gross income less deductions for AGI. AGI is an important reference point that is often used in other calculations.
All inclusive income concept - Answer a definition of income that says that any gross income means all income from whatever source derived.
Gross income - Answer realized income reduced for any excluded or deferred income.
Realized income - Answer income generated in a transaction with a second party in which there is a measurable change in property rights between parties.
Legislative grace - Answer the concept that taxpayers receive certain tax benefits only because Congress writes laws that allow taxpayers to receive the tax benefits.
For AGI deductions - Answer deductions that are subtracted from gross income to determine AGI. Deductions are above the line. more valuable than from AGI deductions
From AGI deductions - Answer deductions subtracted from AGI to calculate taxable income. Deductions are below the line.
Itemized deductions - Answer certain types of expenditures that Congress allows taxpayers to deduct as from AGI deductions. Standard deductions - Answer a fixed deduction offered in lieu of itemized deductions. The amount of the standard deduction depends on the taxpayer's filing status.
Tax table - Answer IRS-provided tables that specify the federal income tax liability for individuals with taxable income within a specific range. The tables differ by filing status and reflect tax rates that increase with taxable income.
Tax rate schedule - Answer a schedule of progressive tax rates and the income ranges to which the rates apply that taxpayers may use to compute their gross tax liability.
Alternative minimum tax (AMT) - Answer is a tax paid on a broader tax base than the base for the "regular" tax; the additional tax paid when the tentative minimum tax (based
on the alternative minimum tax base) exceeds the regular tax (based on the regular tax base). the alternative minimum tax is designed to require taxpayers to pay some minimum level of tax even when they have low or no regular taxable income as a result of certain tax breaks in the tax code.
Self-employment taxes - Answer social security and medicare taxes paid by the self-
employed on a taxpayer's net earnings from self-employment and is also known as FICA tax.
Tax credits - Answer items that directly reduce a taxpayer's tax liability
Withholdings - Answer are taxes collected and remitted to the government by an employer from an employee's wages.
Estimated tax payments - Answer quarterly tax payments that a taxpayer makes to the government. If the tax withholding is insufficient to meet the taxpayer's tax liability.
Qualifying child - Answer is an individual who qualifies as a dependent of a taxpayer by meeting a relationship, age, residence, and support test with respect to the taxpayer.
Qualifying relative - Answer is an individual who is not a qualifying child of another taxpayer and who meets a relationship, support, and gross income test and thus is qualified to be a dependent of another taxpayer.
Filing status - Answer places taxpayers into one of five categories
1. married filing jointly
2. married filing separately
3. qualifying widow/widower
4. head of household
5. single
With Correct Answers Given
Character of income - Answer a type of income that is treated differently for tax purposes from other types of income. Common income characters (or types of income) include ordinary, capital, and qualified dividend.
Preferential tax rate - Answer a tax rate that is lower than the tax rate applied to ordinary income.
Preferentially taxed income - Answer income taxed at a preferential tax rate such as long-term capital gains and qualified dividends.
Deductions - Answer amounts that are subtracted from gross income in calculating taxable income.
Taxable income - Answer is the tax base for the income tax
Adjusted gross income (AGI) - Answer gross income less deductions for AGI. AGI is an important reference point that is often used in other calculations.
All inclusive income concept - Answer a definition of income that says that any gross income means all income from whatever source derived.
Gross income - Answer realized income reduced for any excluded or deferred income.
Realized income - Answer income generated in a transaction with a second party in which there is a measurable change in property rights between parties.
Legislative grace - Answer the concept that taxpayers receive certain tax benefits only because Congress writes laws that allow taxpayers to receive the tax benefits.
For AGI deductions - Answer deductions that are subtracted from gross income to determine AGI. Deductions are above the line. more valuable than from AGI deductions
From AGI deductions - Answer deductions subtracted from AGI to calculate taxable income. Deductions are below the line.
Itemized deductions - Answer certain types of expenditures that Congress allows taxpayers to deduct as from AGI deductions. Standard deductions - Answer a fixed deduction offered in lieu of itemized deductions. The amount of the standard deduction depends on the taxpayer's filing status.
Tax table - Answer IRS-provided tables that specify the federal income tax liability for individuals with taxable income within a specific range. The tables differ by filing status and reflect tax rates that increase with taxable income.
Tax rate schedule - Answer a schedule of progressive tax rates and the income ranges to which the rates apply that taxpayers may use to compute their gross tax liability.
Alternative minimum tax (AMT) - Answer is a tax paid on a broader tax base than the base for the "regular" tax; the additional tax paid when the tentative minimum tax (based
on the alternative minimum tax base) exceeds the regular tax (based on the regular tax base). the alternative minimum tax is designed to require taxpayers to pay some minimum level of tax even when they have low or no regular taxable income as a result of certain tax breaks in the tax code.
Self-employment taxes - Answer social security and medicare taxes paid by the self-
employed on a taxpayer's net earnings from self-employment and is also known as FICA tax.
Tax credits - Answer items that directly reduce a taxpayer's tax liability
Withholdings - Answer are taxes collected and remitted to the government by an employer from an employee's wages.
Estimated tax payments - Answer quarterly tax payments that a taxpayer makes to the government. If the tax withholding is insufficient to meet the taxpayer's tax liability.
Qualifying child - Answer is an individual who qualifies as a dependent of a taxpayer by meeting a relationship, age, residence, and support test with respect to the taxpayer.
Qualifying relative - Answer is an individual who is not a qualifying child of another taxpayer and who meets a relationship, support, and gross income test and thus is qualified to be a dependent of another taxpayer.
Filing status - Answer places taxpayers into one of five categories
1. married filing jointly
2. married filing separately
3. qualifying widow/widower
4. head of household
5. single
