Tax Preparation & Filing Flashcards
7 cards from real CTP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Tax Preparation & Filing flashcards as text
A married couple files jointly with $180,000 AGI. Which deduction phase-out is most likely to affect them?
Answer: Student loan interest deduction
The student loan interest deduction phases out for married filing jointly taxpayers with MAGI above $145,000 (2023), making it unavailable at $180,000 AGI.
What is the 'kiddie tax' and who does it primarily affect?
Answer: A tax that applies children's unearned income above a threshold to the parent's tax rate
The kiddie tax taxes a child's net unearned income above the threshold (e.g., $2,500 in 2023) at the parent's marginal tax rate to prevent income-shifting strategies.
A taxpayer received $5,000 from a lawsuit settlement for personal physical injury. How is this treated for tax purposes?
Answer: Excluded from gross income entirely
Compensatory damages received for personal physical injuries or physical sickness are excluded from gross income under IRC Section 104.
When must a taxpayer include a Schedule B with their Form 1040?
Answer: When taxable interest or ordinary dividends exceed $1,500
Schedule B is required when the taxpayer has more than $1,500 in taxable interest income or ordinary dividends, or has certain foreign accounts or trusts.
What is the difference between a tax credit and a tax deduction?
Answer: A deduction reduces taxable income; a credit reduces tax owed dollar-for-dollar
A deduction lowers taxable income (saving taxes at the marginal rate), while a tax credit directly reduces the tax owed dollar-for-dollar, making credits generally more valuable.
A sole proprietor reports business income and expenses on which schedule?
Answer: Schedule C
Schedule C (Profit or Loss from Business) is used by sole proprietors to report business income and deductible expenses, with net profit flowing to Form 1040.
Which of the following correctly describes the 'wash sale' rule?
Answer: A rule that disallows a loss deduction when a substantially identical security is purchased within 30 days before or after the sale
The wash sale rule (IRC §1091) disallows a capital loss deduction if you buy a substantially identical security within 30 days before or after the sale that generated the loss.