Tax Preparation Income Types and Reporting 2 — Questions and Answers
Question 1: A taxpayer wins $5,000 at a casino. How should this be reported?
- It is tax-free if under $10,000
- As Other Income on Schedule 1 (Correct answer)
- Only if a W-2G was issued
- Gambling winnings are never taxable
Correct answer: As Other Income on Schedule 1
All gambling winnings are taxable and must be reported as Other Income on Schedule 1, regardless of whether a Form W-2G was issued.
Question 2: Alimony paid under a divorce agreement finalized in 2019 is treated how for the payer?
- Not deductible under the new law
- Deductible as an adjustment to income (Correct answer)
- Deductible only if itemizing
- Added to the payer's gross income
Correct answer: Deductible as an adjustment to income
Alimony under pre-2019 (pre-TCJA) divorce agreements is deductible by the payer and taxable to the recipient under the old rules.
Question 3: Which form is used to report interest income of $1,500 from a bank account?
- Schedule B (Correct answer)
- Schedule D
- Form 4952
- Schedule E
Correct answer: Schedule B
Schedule B is required when taxable interest or ordinary dividends exceed $1,500, and it reconciles interest and dividend income.
Question 4: A taxpayer receives a state tax refund. Under what condition is the refund taxable?
- It is always taxable
- Only if it exceeds $1,000
- If the taxpayer itemized and deducted state taxes in the prior year (Correct answer)
- It is never taxable
Correct answer: If the taxpayer itemized and deducted state taxes in the prior year
A state tax refund is taxable only to the extent the taxpayer received a tax benefit from deducting state taxes in the prior year (the tax benefit rule).
Question 5: Which IRS form reports distributions from a traditional IRA or 401(k)?
- Form W-2
- Form 1099-R (Correct answer)
- Form 5498
- Form 1099-DIV
Correct answer: Form 1099-R
Form 1099-R reports distributions from pensions, annuities, retirement plans, and IRAs.
Question 6: An employee is reimbursed $600 under an employer's accountable plan for business travel. How is this treated?
- Included in W-2 wages
- Excluded from taxable income (Correct answer)
- Reported on Schedule C
- Deducted as a miscellaneous itemized deduction
Correct answer: Excluded from taxable income
Reimbursements under an accountable plan are excluded from the employee's taxable income because the employee substantiated the business expense.
Tax Preparation Income Types and Reporting 2
A taxpayer wins $5,000 at a casino.
How should this be reported?