IRS - Internal Revenue Service Certified Taxation for Individuals Questions and Answers

Question 1

A single taxpayer, age 50, has an Adjusted Gross Income (AGI) of $80,000 for the year. They incurred $7,500 in qualified medical expenses. If they choose to itemize their deductions, how much of their medical expenses can they deduct on their Schedule A?

Accepted Answer

$1,500

Answer

A taxpayer can only deduct qualified medical expenses that exceed 7.5% of their Adjusted Gross Income (AGI). In this case, the AGI floor is $80,000 * 7.5% = $6,000. The taxpayer can deduct the amount of expenses that exceeds this floor, which is $7,500 (total expenses) - $6,000 (AGI floor) = $1,500.

Question 2

Which of the following receipts is generally required to be included in a taxpayer's gross income for federal tax purposes?

Accepted Answer

A $10,000 prize won from a national sweepstakes.

Answer

Prizes and awards are generally included in taxable income. Inheritances, child support payments, and life insurance death benefits are specifically excluded from gross income under most circumstances.

Question 3

A freelance consultant expects to owe $4,000 in federal income tax for the year after all withholding and credits are accounted for. To avoid an underpayment penalty, what is the consultant generally required to do?

Accepted Answer

Make estimated tax payments throughout the year.

Answer

Individuals, including sole proprietors, must generally pay estimated taxes if they expect to owe at least $1,000 in tax for the year. The tax system is 'pay-as-you-go,' and for those without sufficient withholding, estimated tax payments are the required method to pay tax throughout the year on income that is not subject to withholding.

Question 4

How did the Tax Cuts and Jobs Act of 2017 (TCJA) change the federal tax treatment of alimony for divorce or separation agreements executed AFTER December 31, 2018?

Accepted Answer

Alimony payments are neither deductible by the payer nor included as taxable income by the recipient.

Answer

For divorce or separation agreements executed after December 31, 2018, the TCJA eliminated the deduction for alimony payments for the payer. Consequently, the recipient of the alimony payments no longer includes them in their gross income.

Question 5

A 16-year-old dependent child has $800 of earned income from a part-time job and $3,500 of unearned income from a trust. For the 2025 tax year, what is the primary tax implication for this child's unearned income under the 'Kiddie Tax' rules?

Accepted Answer

A portion of the unearned income above a certain threshold will be taxed at the parents' highest marginal tax rate.

Answer

Under the Kiddie Tax rules for 2025, a child's unearned income above a certain threshold ($2,700 for 2025) is taxed at the parents' higher tax rate. The first portion of unearned income is offset by the child's standard deduction, the next portion is taxed at the child's rate, and the excess is taxed at the parents' rate. Therefore, a portion is taxed at the parents' rate.

(IRS) Internal Revenue Service Certified Practice Test

(IRS) Internal Revenue Service Certified Practice Test

IRS - Internal Revenue Service Certified Taxation for Individuals Questions and Answers