IRS Taxation for Individuals 2

Question 1

A single taxpayer has $80,000 in wages and $5,000 in qualified dividends. How are the qualified dividends taxed for a taxpayer in the 22% ordinary income bracket?

Accepted Answer

At 15% preferential rate

Answer

Qualified dividends for taxpayers in the 22% bracket are taxed at the 15% preferential capital gains rate.

Question 2

Which of the following expenses is deductible as a medical expense on Schedule A?

Accepted Answer

Prescription eyeglasses and contact lenses

Answer

Prescription eyeglasses and contact lenses qualify as deductible medical expenses because they correct a medical condition.

Question 3

A taxpayer sells their primary residence after living there for 18 months. What is the maximum capital gains exclusion available?

Accepted Answer

$125,000 — prorated for time lived there

Answer

The $250,000 exclusion ($500,000 MFJ) is prorated when the taxpayer fails to meet the full 2-year requirement due to a qualifying unforeseen circumstance.

Question 4

What is the 'kiddie tax' and when does it apply?

Accepted Answer

A tax that applies a parent's rate to a child's unearned income above a threshold

Answer

The kiddie tax taxes a child's net unearned income above the threshold at the parent's marginal rate to prevent income shifting.

Question 5

A married couple filing jointly has $300,000 in net investment income and $250,000 in modified AGI. What additional tax may apply?

Accepted Answer

3.8% Net Investment Income Tax on the lesser of NII or MAGI over threshold

Answer

The 3.8% NIIT applies to the lesser of net investment income or the amount by which MAGI exceeds $250,000 for MFJ filers.

(IRS) Internal Revenue Service Certified Practice Test

(IRS) Internal Revenue Service Certified Practice Test

IRS Taxation for Individuals 2