Tax Preparation Income Types and Reporting 3

Question 1

Which of the following income items is NOT subject to Social Security and Medicare taxes (FICA)?

Accepted Answer

Dividend income

Answer

Tips over $20 per month

Answer

Regular wages

Answer

Bonus payments

Question 2

A taxpayer sells stock for $10,000 that they purchased for $7,000 two years ago. How is the $3,000 gain classified?

Accepted Answer

Long-term capital gain

Answer

Ordinary income

Answer

Short-term capital gain

Answer

Passive income

Question 3

Which of the following is considered tax-exempt interest that must still be reported on Form 1040?

Accepted Answer

Municipal bond interest

Answer

Corporate bond interest

Answer

US Treasury bond interest

Answer

Savings account interest

Question 4

Cancellation of debt income is generally:

Accepted Answer

Taxable as ordinary income unless an exclusion applies

Answer

Always tax-free

Answer

Taxed as a capital gain

Answer

Reported on Schedule D

Question 5

Which form reports dividend income paid to a shareholder?

Accepted Answer

Form 1099-DIV

Answer

Form W-2

Answer

Form 1099-INT

Answer

Schedule K-1

Question 6

A self-employed taxpayer earns $50,000 in net profit. What percentage of net self-employment earnings is subject to self-employment tax?

Accepted Answer

92.35%

Answer

100%

Answer

85%

Answer

50%