Federal Taxation Final Exam
2025-2026 | Questions with 100%
Correct Answers
1. Which of the following characteristics would NOT be used to describe the
generic nature of a tax?
A. Normally, there is a direct relationship between the exaction of revenue
and the benefits received by the taxpayer.
B. A tax serves as the primary source of government revenue.
C. Taxes are generally compulsive and irrecoverable.
D. Taxes are voluntary contributions by citizens.
2. What is the term for the tax base adjustment that reduces gross income
before taxable income is calculated?
A. Tax credit
B. Tax deduction
C. Tax exemption
D. Tax liability
3. Which of the following is NOT included in gross income under federal tax law?
A. Wages and salaries
B. Interest income
C. Life insurance proceeds received upon death
D. Rental income
4. What is the maximum standard deduction for a single filer in the 2025 tax
year?
A. $6,000
B. $9,500
C. $13,850
D. $15,000
,5. Which filing status provides the highest standard deduction amount?
A. Single
B. Head of Household
C. Qualifying Widow(er)
D. Married Filing Jointly
6. What is the tax treatment of municipal bond interest?
A. Fully taxable
B. Taxable only at the federal level
C. Exempt from federal income tax
D. Taxable as capital gains
7. The Alternative Minimum Tax (AMT) is designed to:
A. Tax all income at a flat rate
B. Provide additional credits to low-income taxpayers
C. Ensure that high-income taxpayers pay a minimum level of tax
D. Subsidize state taxes
8. Which of the following is considered a tax credit rather than a tax deduction?
A. Mortgage interest
B. Charitable contributions
C. Child Tax Credit
D. Medical expenses
9. Which tax form does an individual use to file their federal income tax return?
A. Form W-2
B. Form 1099
C. Form 1040
D. Schedule C
10.Which of the following expenses is NOT deductible as a business expense?
A. Office rent
B. Employee salaries
C. Personal commuting expenses
D. Office supplies
,11.The maximum tax rate in the federal income tax brackets for 2025 is
approximately:
A. 25%
B. 32%
C. 35%
D. 37%
12.What is the purpose of Form W-4?
A. Report annual income to IRS
B. Summary of itemized deductions
C. To inform the employer of the correct amount of tax to withhold from
employee’s paycheck
D. To register a new business
13.How are capital gains taxed if the asset is held for more than one year?
A. At ordinary income tax rates
B. There is no tax on capital gains
C. At preferential long-term capital gains rates
D. At a flat 10% rate
14.Which of the following is NOT a qualifying dependent test for the Child Tax
Credit?
A. Relationship
B. Age
C. Residency
D. Income level of the taxpayer
15.What is the penalty for failure to file a federal tax return by the deadline
without an extension?
A. 5% of unpaid taxes per month
B. 5% of unpaid taxes per month, up to 25%
C. 10% flat penalty
D. No penalty if taxes are paid on time
16.Which of the following items are subject to self-employment tax?
A. Salary from an employer
, B. Net earnings from self-employment
C. Interest income
D. Dividend income
17.What income must be reported on a federal tax return?
A. Only income that exceeds $10,000
B. Only wages and salaries
C. Only earned income
D. All worldwide income regardless of source
18.Which of the following retirement contributions are tax deductible?
A. Roth IRA contributions
B. Traditional IRA contributions, subject to limits
C. 401(k) Roth contributions
D. Gifts to family members
19.What is 'tax withholding'?
A. Delayed payment of taxes
B. The amount of tax refund
C. Amount of tax the employer withholds from employee wages each pay
period
D. A form of tax credit
20.Which of the following is considered a capital asset?
A. Inventory for sale
B. Personal residence
C. Accounts receivable
D. Business supplies
21.The Earned Income Tax Credit (EITC) is designed primarily to:
A. Reduce taxes for retirees
B. Assist high-income taxpayers
C. Benefit low-to-moderate income working individuals and families
D. Provide credits for college expenses
2025-2026 | Questions with 100%
Correct Answers
1. Which of the following characteristics would NOT be used to describe the
generic nature of a tax?
A. Normally, there is a direct relationship between the exaction of revenue
and the benefits received by the taxpayer.
B. A tax serves as the primary source of government revenue.
C. Taxes are generally compulsive and irrecoverable.
D. Taxes are voluntary contributions by citizens.
2. What is the term for the tax base adjustment that reduces gross income
before taxable income is calculated?
A. Tax credit
B. Tax deduction
C. Tax exemption
D. Tax liability
3. Which of the following is NOT included in gross income under federal tax law?
A. Wages and salaries
B. Interest income
C. Life insurance proceeds received upon death
D. Rental income
4. What is the maximum standard deduction for a single filer in the 2025 tax
year?
A. $6,000
B. $9,500
C. $13,850
D. $15,000
,5. Which filing status provides the highest standard deduction amount?
A. Single
B. Head of Household
C. Qualifying Widow(er)
D. Married Filing Jointly
6. What is the tax treatment of municipal bond interest?
A. Fully taxable
B. Taxable only at the federal level
C. Exempt from federal income tax
D. Taxable as capital gains
7. The Alternative Minimum Tax (AMT) is designed to:
A. Tax all income at a flat rate
B. Provide additional credits to low-income taxpayers
C. Ensure that high-income taxpayers pay a minimum level of tax
D. Subsidize state taxes
8. Which of the following is considered a tax credit rather than a tax deduction?
A. Mortgage interest
B. Charitable contributions
C. Child Tax Credit
D. Medical expenses
9. Which tax form does an individual use to file their federal income tax return?
A. Form W-2
B. Form 1099
C. Form 1040
D. Schedule C
10.Which of the following expenses is NOT deductible as a business expense?
A. Office rent
B. Employee salaries
C. Personal commuting expenses
D. Office supplies
,11.The maximum tax rate in the federal income tax brackets for 2025 is
approximately:
A. 25%
B. 32%
C. 35%
D. 37%
12.What is the purpose of Form W-4?
A. Report annual income to IRS
B. Summary of itemized deductions
C. To inform the employer of the correct amount of tax to withhold from
employee’s paycheck
D. To register a new business
13.How are capital gains taxed if the asset is held for more than one year?
A. At ordinary income tax rates
B. There is no tax on capital gains
C. At preferential long-term capital gains rates
D. At a flat 10% rate
14.Which of the following is NOT a qualifying dependent test for the Child Tax
Credit?
A. Relationship
B. Age
C. Residency
D. Income level of the taxpayer
15.What is the penalty for failure to file a federal tax return by the deadline
without an extension?
A. 5% of unpaid taxes per month
B. 5% of unpaid taxes per month, up to 25%
C. 10% flat penalty
D. No penalty if taxes are paid on time
16.Which of the following items are subject to self-employment tax?
A. Salary from an employer
, B. Net earnings from self-employment
C. Interest income
D. Dividend income
17.What income must be reported on a federal tax return?
A. Only income that exceeds $10,000
B. Only wages and salaries
C. Only earned income
D. All worldwide income regardless of source
18.Which of the following retirement contributions are tax deductible?
A. Roth IRA contributions
B. Traditional IRA contributions, subject to limits
C. 401(k) Roth contributions
D. Gifts to family members
19.What is 'tax withholding'?
A. Delayed payment of taxes
B. The amount of tax refund
C. Amount of tax the employer withholds from employee wages each pay
period
D. A form of tax credit
20.Which of the following is considered a capital asset?
A. Inventory for sale
B. Personal residence
C. Accounts receivable
D. Business supplies
21.The Earned Income Tax Credit (EITC) is designed primarily to:
A. Reduce taxes for retirees
B. Assist high-income taxpayers
C. Benefit low-to-moderate income working individuals and families
D. Provide credits for college expenses
