TEST 1 Worksheet

Topic: How to Calculate a Tax?

Learning Objective: 01-03 Describe the different tax rate structures and calculate a tax.

[Conceptual] ☐

What is the most difficult part about calculating tax?

ANSWER: Calculating the tax BASE. Not tax rate

Topic: How to Calculate a Tax?

Learning Objective: 01-03 Describe the different tax rate structures and calculate a tax.

[Problem] ☐
Given: Taxable income, interest on municipal bond, use tax rate schedule, then
calculate tax owed

Topic: How to Calculate a Tax?

Learning Objective: 01-03 Describe the different tax rate structures and calculate a tax.

[Problem] ☐
Given: Filing status, municipal bond interest, calculate tax owed. Answer what average
tax rate is
ANSWER: Average tax rate = Total tax / Taxable income

Topic: How to Calculate a Tax?

Learning Objective: 01-03 Describe the different tax rate structures and calculate a tax.

[Problem] ☐
Given: Filing status, municipal bond interest, calculate tax owed. Answer what
effective tax rate is

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Topic: How to Calculate a Tax?
Learning Objective: 01-03 Describe the different tax rate structures and calculate a tax.

[Problem]☐

Given: Filing status, municipal bond interest, calculate tax owed. Answer what
marginal tax rate is
Answer:

Topic: How to Calculate a Tax?

Learning Objective: 01-03 Describe the different tax rate structures and calculate a tax.

[Problem] ☐
Given: Filing status, municipal bond interest, calculate tax owed. Person will receive
more income. Calculate current tax liability, taxes with new income. Divide additional
taxes by additional income

Topic: Types of Taxes

Learning Objective: 01-04 Identify the various federal, state, and local taxes.

[Problem] ☐
Given: Person invests corporate bond in municipal bond. Interest rate will be given.
Marginal tax rate will be given. Calculate after-tax rate of return on municipal bond

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Topic: Types of Taxes
Learning Objective: 01-04 Identify the various federal, state, and local taxes.

[Problem] ☐
Given: Person invests corporate bond in municipal bond. Interest rate will be given.
Marginal tax rate will be given. Calculate after-tax rate of return on corporate bond

Topic: Taxpayer Filing Requirements

Learning Objective: 02-01 Identify the filing requirements for income tax returns and the statute of
limitations for assessment.

Conceptual ☐
Person files Form 1040. File for an extension. What is the last date they can file
without penalty?

Topic: Taxpayer Filing Requirements

Learning Objective: 02-01 Identify the filing requirements for income tax returns and the statute of
limitations for assessment.

[Conceptual] ☐
Person files form 1040 on specific date. What is the statute of limitations?

ANSWER: It is within 3 years of the LATER of:

(i) the date the tax return was actually filed (3 years from February
10th of this year) or
(ii) (ii) the tax return's original due date (3 years from April 15th of
this year). Accordingly, Latoya's statute of limitations for the tax
return will end 3 years from April 15th.
.Topic: Taxpayer Filing Requirements
Learning Objective: 02-01 Identify the filing requirements for income tax returns and the statute of
limitations for assessment.

[Conceptual] ☐
Person has not EVER filed a 1040. Or specific year’s 1040. What is statute of
limitation?
ANSWER: The statute of limitations remains open indefinitely for years in
which the taxpayer fails to file a return. 

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Topic: Taxpayer Filing Requirements
Learning Objective: 02-01 Identify the filing requirements for income tax returns and the statute of
limitations for assessment.

[Conceptual] ☐
Determine if someone is required to file a tax return? Even if not required, should they
file for a refund? Etc.

Topic: Tax Law Sources

Learning Objective: 02-03 Evaluate the relative weights of the various tax law sources.

[Conceptual] ☐
What is Primary Authority? List the following.
ANSWER: official sources of the tax law generated by the legislative branch,
judicial branch, and executive/administrative branch. See Exhibit 2-5

Topic: Basic Tax Planning Overview

Learning Objective: 03-01 Identify the objectives of basic tax planning strategies.

[Conceptual] ☐
What is the goal of tax planning?
ANSWER: to maximize the taxpayer's after-tax wealth while achieving the
taxpayer's non-tax goals
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Topic: Basic Tax Planning Overview
Learning Objective: 03-01 Identify the objectives of basic tax planning strategies.

[Conceptual] ☐
What are tax planning strategies? What is NOT a tax planning strategy?
ANSWER: The 3 tax planning strategies are,
1.Timing (deferring or accelerating taxable income and tax deductions)
2.Income shifting (shifting income from high to low tax rate taxpayers)
3.Conversion (converting income from high to low vtax rate activities)

Topic: The Individual Income Tax Formula

Learning Objective: 04-01 Describe the formula for calculating an individual taxpayerʹs taxes payable or
refund.

[Conceptual] ☐
What are “for AGI” deductions? What is considered true about “for AGI” deductions?
ANSWER:
1. “Above the line” deductions
2. Reduces AGI
3. More valuable than “from” AGI deductions
Ex:
-Alimony PAID
-Health insurance deduction for self-employed taxpayers
-Rental & royalty expenses
-Capital losses (limited to $3k/year and transferred to next year)
-Half of the self-employment taxes paid (deducting employer
taxes)
-Business expenses
-Losses on dispositions of assets used in business/trade
-Contributions to qualified retirement accounts

Topic: The Individual Income Tax Formula

Learning Objective: 04-01 Describe the formula for calculating an individual taxpayerʹs taxes payable or
refund.

[Problem] ☐
Given: Compensation for employee given, stocks owned, life insurance proceeds
given. What is their gross income?

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Topic: The Individual Income Tax Formula
Learning Objective: 04-01 Describe the formula for calculating an individual taxpayerʹs taxes payable or
refund.

[Problem] ☐
Given: A person’s tax liability, given tax credits, given taxes withheld by employer. Will
they have a tax refund, owed, or neither?

Topic: The Individual Income Tax Formula

Learning Objective: 04-01 Describe the formula for calculating an individual taxpayerʹs taxes payable or
refund.

[Conceptual] ☐
What are tax credits and how do they affect a return?
ANSWER: Items that directly reduce taxpayer’s tax liability
Ex: child/dependent tax (care) credit, earned income credit, American
opportunity credit, lifetime learning credit

Topic: Dependents of the Taxpayer

Learning Objective: 04-02 Explain the requirements for determining who qualifies as a taxpayerʹs
dependent.

[Conceptual] ☐
Being a dependent. There are 2 qualifications, but how can you be a dependent as
anyone?
ANSWER:
Qualifying child test: relationship, age, residence, support tests
Dependency requirements:
1. Must be a resident of the U.S, Canada, or Mexico.
2. Must not file a joint return with spouse unless there is no
tax liability.
3. Must be considered either a qualifying child or qualifying
relative.

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Topic: Dependents of the Taxpayer
Learning Objective: 04-02 Explain the requirements for determining who qualifies as a taxpayerʹs
dependent.

[Conceptual] ☐
What is NOT one of the tests to qualify as a qualifying child?
ANSWER:
Qualifying child test: relationship, age, residence, support tests

Topic: Dependents of the Taxpayer

Learning Objective: 04-02 Explain the requirements for determining who qualifies as a taxpayerʹs
dependent.

[Conceptual] ☐
Info will be given about someone’s child. Is this person a qualifying child? If not, what
test did they fail?

Topic: Dependents of the Taxpayer

Learning Objective: 04-02 Explain the requirements for determining who qualifies as a taxpayerʹs
dependent.

[Conceptual] ☐
Info will be given about 2 of someone’s children. Are both qualifying childs? If not,
what test did they fail?

Topic: Filing Status

Learning Objective: 04-03 Determine a taxpayerʹs filing status.

[Conceptual] ☐
Filing status. What type of thing will you have depending on your filing status? How
will your filing status be diff vs another status?

Topic: Filing Status

Learning Objective: 04-03 Determine a taxpayerʹs filing status.

[Conceptual] ☐
MFJ couple. They are now divorced. IRS determines that there was an underpayment
for year they filed MFJ. Determine if one, or both, or neither of them are legally liable
for underpayment for taxes

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Topic: Filing Status
Learning Objective: 04-03 Determine a taxpayerʹs filing status.

[Conceptual] ☐
A person’s spouse passes away this year. What will their filing status be at the end of
the year?
Answer: Married Filing Jointly for this year

Topic: Filing Status

Learning Objective: 04-03 Determine a taxpayerʹs filing status.

[Conceptual] ☐
A person’s spouse passes away. What will their filing status be at the end of the year
2?
Answer: Qualifying widow for up to 2 years if unmarried AND maintains
household for dependent child. If no dependents, then single.
Topic: Filing Status
Learning Objective: 04-03 Determine a taxpayerʹs filing status.

[Conceptual] ☐
A person who has no children but they provide financial support to their mother who
is a qualifying dependent. Determine Jan’s filing status
Answer: Head of household

Topic: Filing Status

Learning Objective: 04-03 Determine a taxpayerʹs filing status.

[Conceptual] ☐
A married couple. Partner leaves spouse. Still married. What is the best filing status of
person who was abandoned?
Answer: Head of household if spouse abandoned residence during last 6mo of
tax year. Must pay more than half of household with dependent
Topic: Filing Status
Learning Objective: 04-03 Determine a taxpayerʹs filing status.

[Conceptual] ☐
At what point during the year do you determine what a person’s filing status is?
Answer: At the end of the year Dec 31 st

Topic: Realization and Recognition of Income

Learning Objective: 05-01 Apply the concept of realization.

[Conceptual] ☐
What is gross income?
Answer: all income from whatever source derived, unless excluded by law.
Gross income includes income realized in any form, whether money, property,
or services.

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Topic: Realization and Recognition of Income
Learning Objective: 05-01 Apply the concept of realization.

[Conceptual] ☐
Personal files 1040 that provided sewing services to nonprofit in exchange for tickets
to something. Determine what the affect of this transaction is?

Topic: Realization and Recognition of Income

Learning Objective: 05-01 Apply the concept of realization.

[Conceptual] ☐
Person files 1040. Check is received at the end of the year. Determine if they must be
taxed on this particular check?

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Topic: Realization and Recognition of Income
Learning Objective: 05-01 Apply the concept of realization.

[Conceptual] ☐
Person provides various services to client throughout year. They get paid in various
types of property. Which of the following listed would not count in income?
Topic: Realization and Recognition of Income
Learning Objective: 05-01 Apply the concept of realization.

[Problem] ☐
Person purchases stock. Determine how much someone can take as a loss
Topic: Types of Income
Learning Objective: 05-02 Discuss the distinctions between the various sources of income, including
income from services and property.

[Problem]
Person purchases a life annuity. Use IRS table. How much of first payment will be
included in gross income?

Topic: Types of Income

Learning Objective: 05-02 Discuss the distinctions between the various sources of income, including
income from services and property.

[Problem] ☐
Person purchases a life annuity. Use IRS table. This will be the last year they will be
receiving amount they paid – they recovered the cost. What would the tax situation be
for this person who’s receiving after the fact that the annuity’s cost has been
recovered?
ANSWER: The entirety of the monthly payment will be included in the gross income if
original investment as return of capital has been received. Ex. $6500 from above

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Topic: Types of Income
Learning Objective: 05-02 Discuss the distinctions between the various sources of income, including
income from services and property.

[Problem] ☐
Employee receives gifts from company for 25 th anniversary – cash and etc. How much
of these gifts are taxable if any?

Topic: Types of Income

Learning Objective: 05-02 Discuss the distinctions between the various sources of income, including
income from services and property.

[Problem] ☐
Bank forgave a loan for person. Amount of asset and liability will be given after the
discharge. Determine if any of the loan would be considered taxable?

Topic: Realization and Recognition of Income

Learning Objective: 05-01 Apply the concept of realization.

[Problem] ☐
They received a refund this year. The amount that was over the standard deduction
for itemized deductions will be given from last year. Determine if any or if all of tax
refund is taxable?

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Topic: Exclusion Provisions
Learning Objective: 05-03 Apply basic income exclusion provisions to compute gross income.

[Problem] ☐
Student received scholarships. For books, tuition, etc. They also received money for
dorm living. Determine, if any, of amount of scholarships is considered taxable?

Topic: Exclusion Provisions

Learning Objective: 05-03 Apply basic income exclusion provisions to compute gross income.

[Problem] ☐
Person sues a company for damages for reputation. Damages for emotional damages
were given. How much of this is taxable?

Topic: Types of Income

Learning Objective: 05-02 Discuss the distinctions between the various sources of income, including
income from services and property.

[Problem] ☐
Person who gambles wins and loses money. How much of his winnings is included in
his gross income?

Topic: Exclusion Provisions

Learning Objective: 05-03 Apply basic income exclusion provisions to compute gross income.

[Problem] ☐
Foreign earnings exclusion. Determine how much of this person’s salary will be
excluded from their income if they qualify for foreign earnings exclusion?
ANSWER: To qualify for exclusion,
-Taxpayer must have her tax home in a foreign country
-Be considered a resident of the foreign country by living there for the entire
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 calendar year or for 330 days in a consecutive 12-month period (may occur
over 2 tax years.)

Topic: Exclusion Provisions

Learning Objective: 05-03 Apply basic income exclusion provisions to compute gross income.

[Problem] ☐
Someone in an accident who is now receiving disability pay. Nontaxable fringe benefit
from employer. Hospital bills paid by insurance company – provided by employer.
Determine, if any, of this income is taxable
ANSWER:
Excluded from taxable income:
-Payments from workers comp
-Compensation from physical injury
-Reimbursements by insurance for medical expenses paid by taxpayer
-Disability payments received from an employee-purchased policy
Included:
-Punitive damages

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Topic: Deductions for AGI
Learning Objective: 06-01 Identify the common deductions necessary for calculating adjusted gross
income (AGI).

[Conceptual] ☐
Which of the following statements is true about these deductions?
-Interest on education loan
-Moving expenses
-Self-employment taxes
-Excess business losses
Topic: Deductions for AGI
Learning Objective: 06-01 Identify the common deductions necessary for calculating adjusted gross
income (AGI).

[Problem] ☐
Education interest expenses. MFJ. Income provided. Hint is Phase-out. Determine
exact amount they are eligible for deduction

Topic: Deductions for AGI

Learning Objective: 06-01 Identify the common deductions necessary for calculating adjusted gross
income (AGI).

[Conceptual] ☐
Self-employed person paid health insurance not through exchange. Understand in
what cases they are able to deduct these health expenses and when they are not.

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Topic: Deductions from AGI: Itemized Deductions
Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Conceptual] ☐
Medical expenses that incurred for a dependent, qualifying relative, long term care
facility spouse, etc.. In any of these situations, are these medical expenses deductible?

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Conceptual] ☐
Medical expenses as itemized deductions. Listed various things, if any of the listed
qualify as an itemized deduction for medical expenses.

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Conceptual] ☐
Various taxes expenses listed. Personal property, income taxes, real estate, etc. Which
of the following are not eligible to be an itemized

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Conceptual] ☐
Taxpayer paid a certain amount in real estate and income tax. How could they take
these deductions on their 1040?

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Conceptual] ☐
Which of the following is true. Interest on mortgage/loan as a deduction

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Problem] ☐
Interest paid, mortgage, interest on home equity, credit card, investment account.

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 Invest income. How much of interest expense can they put on their Schedule C?

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Problem] ☐
Donations. Cash, items, etc. Cost, FMV. AGI given. What is their charitable
contribution?

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Problem] ☐
Person’s stock. AGI. How much of that stock can be deducted on 1040?

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Problem] ☐
Person’s inventory. AGI. How much can they deduct on 1040?
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Topic: Deductions from AGI: Itemized Deductions
Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Conceptual] ☐
Pick true statement. Casualty losses.

Topic: Deductions from AGI: Itemized Deductions

Learning Objective: 06-02 Describe the different types of itemized deductions available to individuals.

[Conceptual] ☐
Hobbies. Stock racing. How much can they take for itemized deduction with respect to
hobby?

Topic: The Standard Deduction

Learning Objective: 06-03 Determine the standard deduction available to individuals.

[Conceptual] ☐
Standard deduction. Person is older and deaf. What is their standard deduction?

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