Tax Consulting Tax Credits and Deductions 1 — Questions and Answers
Question 1: What is the primary difference between a tax credit and a tax deduction?
- A tax credit reduces taxable income; a deduction reduces tax owed directly
- A tax credit reduces tax owed dollar-for-dollar; a deduction reduces taxable income (Correct answer)
- Both reduce taxable income by the same amount
- A tax credit applies only to businesses; a deduction applies only to individuals
Correct answer: A tax credit reduces tax owed dollar-for-dollar; a deduction reduces taxable income
A tax credit directly reduces the amount of tax owed dollar-for-dollar, while a deduction reduces taxable income by the deduction amount multiplied by the applicable tax rate.
Question 2: Which of the following is a fully refundable federal tax credit?
- Child and Dependent Care Credit
- Lifetime Learning Credit
- Earned Income Tax Credit (EITC) (Correct answer)
- American Opportunity Tax Credit
Correct answer: Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is fully refundable, meaning eligible taxpayers can receive it as a refund even if they owe no federal income tax.
Question 3: What is the standard deduction amount for a single filer for tax year 2024?
- $12,550
- $13,850
- $14,600 (Correct answer)
- $15,200
Correct answer: $14,600
For tax year 2024, the standard deduction for a single filer is $14,600, adjusted annually for inflation by the IRS.
Question 4: Which expense category was suspended as a miscellaneous itemized deduction by the Tax Cuts and Jobs Act of 2017?
- Charitable contributions
- Unreimbursed employee business expenses (Correct answer)
- Mortgage interest on a primary residence
- State and local taxes paid
Correct answer: Unreimbursed employee business expenses
The TCJA suspended the deduction for unreimbursed employee business expenses (previously subject to the 2% AGI floor) through 2025.
Question 5: What is the maximum amount of state and local taxes (SALT) deductible on a federal income tax return under current law?
- $5,000
- $7,500
- $10,000 (Correct answer)
- $15,000
Correct answer: $10,000
The Tax Cuts and Jobs Act capped the SALT deduction at $10,000 ($5,000 for married filing separately) for federal income tax purposes.
Question 6: For tax year 2024, what is the Child Tax Credit amount per qualifying child?
- $1,000
- $1,500
- $2,000 (Correct answer)
- $3,600
Correct answer: $2,000
The Child Tax Credit is $2,000 per qualifying child under age 17, with up to $1,700 refundable as the Additional Child Tax Credit for 2024.
Question 7: Which of the following is an 'above-the-line' deduction that reduces adjusted gross income?
- Home mortgage interest
- Charitable contributions
- Student loan interest (Correct answer)
- Medical expenses
Correct answer: Student loan interest
Student loan interest (up to $2,500) is an above-the-line deduction that reduces AGI and can be claimed without itemizing deductions.
Tax Consulting Tax Credits and Deductions 1
What is the primary difference between a tax credit and a tax deduction?