HS 321 Exam Questions and Answers Latest Update 2025-2026
Gross Income Equation - Answers Income minus exclusions
Adjusted Gross Income Equation - Answers Gross Income minus Deductions for AGI or above
the line deductions
Taxable Income Equation - Answers AGI minus (greater of itemized or standard deduction)
minus personal and dependency exemptions minus 20% Qualified business income deduction
Tax Liability Equation - Answers Taxable income times applicable tax rates minus tax credits
13 Items included in Gross Income - Answers 1. Compensation for services
2. Income from life insurance and endowment contracts
3. Income derived from business
4. Pensions
5. Gains derived from dealings in property
6. Discharge of indebtedness
7. Interest and dividends
8. Distributive share of partnership gross income
9. Rents and royalties
10. Income in respect of a decedent
11. Alimony and separate maintenance payments required by a divorce decree entered into
before 12/31/18
12. Income from an interest in an estate or trust
13. Annuity payments
Exclusions definition - Answers Income not classified as taxable
List of exclusions from gross income (12) - Answers 1. Interest income from municipal bonds
2. Cash or property received by a gift
3. Child support payments received from a former spouse
4. Deferral contributions to certain retirement plans
5. Cash or property received by inheritance
,6. Gain on the sale of a principal residence
7. Specified employee fringe benefits
8. Scholarship or fellowship
9. Qualifying distributions from a Roth IRA during retirement
10. Life insurance proceeds received because of the death of the insured
11. Alimony from post 2018 divorce
12. Cash or property received by a gift
10 Deductions for AGI (Above the line) - Answers 1. Alimony paid
2. Business expenses
3. Deductible contributions to Traditional IRAs
4. Rental or royalty income expenses
5. Tuition expenses for higher education
6. Losses from the sale of business property
7. Interest paid on student loans (only first 2500)
8. Moving expenses (on hold from 2018 to 2025)
9. Health savings account (HSA) contributions
10. Contributions to SEP, SIMPLE or qualified plan
3 types of deductions from AGI (below the line) - Answers 1. Standard deduction
2. Itemized deductions
3. 20% QBI Deduction
Standard Deduction amount - Answers 25,900 for MFJ
12950 for MFS
19400 for HoH
12950 for Single
2 classes the additional standardized deduction applies to - Answers 1. Taxpayer over the age
of 65
, 2. Taxpayer is blind
Amount of the additional standard deduction - Answers 1400 for MFJ, MFS, surviving spouse
1750 for HoH
1750 for Single
a taxpayer who is a dependent of another will have a limited standard deduction, equal to the
greater of - Answers 1150 or 400 plus earned income
3 types of tax systems - Answers 1. regressive tax, paid at the same amount by everyone
2. proportional tax - flat tax, same rate by everyone
3. progressive tax
When can you use the MFJ status - Answers 1. Married as of the last day of the taxable year
2. Spouse dies during the taxable year
When you can use the Surviving Spouse (Qualifying Widow) status? - Answers Allowed for 2
years after the death of a spouse if taxpayer maintains a home in which a dependent child lives
When can you use the MFS status? - Answers 1. Spouses are separated
2. One spouse suspects the other is not reporting income
3. Tax minimization purposes
When can you use the head of household status? - Answers Taxpayers who are unmarried as of
the end of the year or qualify as an abandoned spouse. They must pay more than 1/2 the cost
of maintaining a household for a dependent relative for more than 1/2 the tax year.
All dependencies must satisfy which tests? - Answers Joint Return test and Citizen/Residency
Test
What is the joint return test? - Answers Married dependent must not file a joint return with a
spouse unless the return is filed to claim a refund, neither spouse is otherwise required to file a
return or no tax liability exists for either spouse on separate returns
What is the citizenship/redidency test? - Answers The dependent must be a citizen of the US or
a resident of the US, Canada or Mexico
What are the 4 tests for a qualifying child? - Answers 1. Relationship Test
2. Abode Test
3. Age test
Gross Income Equation - Answers Income minus exclusions
Adjusted Gross Income Equation - Answers Gross Income minus Deductions for AGI or above
the line deductions
Taxable Income Equation - Answers AGI minus (greater of itemized or standard deduction)
minus personal and dependency exemptions minus 20% Qualified business income deduction
Tax Liability Equation - Answers Taxable income times applicable tax rates minus tax credits
13 Items included in Gross Income - Answers 1. Compensation for services
2. Income from life insurance and endowment contracts
3. Income derived from business
4. Pensions
5. Gains derived from dealings in property
6. Discharge of indebtedness
7. Interest and dividends
8. Distributive share of partnership gross income
9. Rents and royalties
10. Income in respect of a decedent
11. Alimony and separate maintenance payments required by a divorce decree entered into
before 12/31/18
12. Income from an interest in an estate or trust
13. Annuity payments
Exclusions definition - Answers Income not classified as taxable
List of exclusions from gross income (12) - Answers 1. Interest income from municipal bonds
2. Cash or property received by a gift
3. Child support payments received from a former spouse
4. Deferral contributions to certain retirement plans
5. Cash or property received by inheritance
,6. Gain on the sale of a principal residence
7. Specified employee fringe benefits
8. Scholarship or fellowship
9. Qualifying distributions from a Roth IRA during retirement
10. Life insurance proceeds received because of the death of the insured
11. Alimony from post 2018 divorce
12. Cash or property received by a gift
10 Deductions for AGI (Above the line) - Answers 1. Alimony paid
2. Business expenses
3. Deductible contributions to Traditional IRAs
4. Rental or royalty income expenses
5. Tuition expenses for higher education
6. Losses from the sale of business property
7. Interest paid on student loans (only first 2500)
8. Moving expenses (on hold from 2018 to 2025)
9. Health savings account (HSA) contributions
10. Contributions to SEP, SIMPLE or qualified plan
3 types of deductions from AGI (below the line) - Answers 1. Standard deduction
2. Itemized deductions
3. 20% QBI Deduction
Standard Deduction amount - Answers 25,900 for MFJ
12950 for MFS
19400 for HoH
12950 for Single
2 classes the additional standardized deduction applies to - Answers 1. Taxpayer over the age
of 65
, 2. Taxpayer is blind
Amount of the additional standard deduction - Answers 1400 for MFJ, MFS, surviving spouse
1750 for HoH
1750 for Single
a taxpayer who is a dependent of another will have a limited standard deduction, equal to the
greater of - Answers 1150 or 400 plus earned income
3 types of tax systems - Answers 1. regressive tax, paid at the same amount by everyone
2. proportional tax - flat tax, same rate by everyone
3. progressive tax
When can you use the MFJ status - Answers 1. Married as of the last day of the taxable year
2. Spouse dies during the taxable year
When you can use the Surviving Spouse (Qualifying Widow) status? - Answers Allowed for 2
years after the death of a spouse if taxpayer maintains a home in which a dependent child lives
When can you use the MFS status? - Answers 1. Spouses are separated
2. One spouse suspects the other is not reporting income
3. Tax minimization purposes
When can you use the head of household status? - Answers Taxpayers who are unmarried as of
the end of the year or qualify as an abandoned spouse. They must pay more than 1/2 the cost
of maintaining a household for a dependent relative for more than 1/2 the tax year.
All dependencies must satisfy which tests? - Answers Joint Return test and Citizen/Residency
Test
What is the joint return test? - Answers Married dependent must not file a joint return with a
spouse unless the return is filed to claim a refund, neither spouse is otherwise required to file a
return or no tax liability exists for either spouse on separate returns
What is the citizenship/redidency test? - Answers The dependent must be a citizen of the US or
a resident of the US, Canada or Mexico
What are the 4 tests for a qualifying child? - Answers 1. Relationship Test
2. Abode Test
3. Age test
