Basic Income Tax

Question 2

What is the definition of Income?

Answer 2

Income is any increase in wealth, from any source, unless specifically excluded by law.

Question 3

What are Wages in the context of income?

Answer 3

Compensation for employment.

Question 4

What is Business Income?

Answer 4

Profits from self-employment or business activities.

Question 5

Define Capital Gains.

Answer 5

Profit from the sale of assets.

Question 6

What does Interest refer to in income?

Answer 6

Earnings from lending money or bank accounts.

Question 7

What is Rents income?

Answer 7

Income from leasing property.

Question 8

Define Royalties.

Answer 8

Payments for use of property, patents, or copyrights.

Question 9

What are Dividends?

Answer 9

Earnings distributed by corporations to shareholders.

Question 10

What are Pensions/Annuities?

Answer 10

Retirement plan distributions.

Question 11

What is Income in Respect of a Decedent (IRD)?

Answer 11

Income earned but not received before a decedent’s death, taxable to heirs.

Question 12

Are Life Insurance Proceeds taxable?

Answer 12

Taxable only if not paid by reason of death or if interest is paid.

Question 13

True or False: Prizes and Awards are generally taxable at FMV.

Answer 13

True

Question 14

What is the tax implication of Group Term Life Insurance coverage over $50,000?

Answer 14

Cost of coverage above $50,000 is taxable to the employee.

Question 15

Is Unemployment Compensation taxable?

Answer 15

Fully taxable.

Question 16

What percentage of Social Security Benefits may be taxable?

Answer 16

Up to 85% may be taxable, depending on income.

Question 17

Is Alimony Received taxable if the divorce was finalized before 1/1/2019?

Answer 17

Taxable.

Question 18

What are Exclusions in tax terms?

Answer 18

Items specifically exempt from gross income by law.

Question 19

What is an example of a common Exclusion?

Answer 19

Municipal Bond Interest: Interest from state or local government bonds is tax-exempt.

Question 20

What is Return of Capital?

Answer 20

Repayment of your original investment (basis) is not taxable.

Question 21

True or False: Life Insurance Proceeds from death are generally tax-free to the beneficiary.

Answer 21

True

Question 22

What is the definition of Gross Income?

Answer 22

Total income minus exclusions.

Question 23

What are Above-the-Line Deductions?

Answer 23

Deductions subtracted from gross income to arrive at AGI.

Question 24

What is the limit for IRA Contributions in 2025?

Answer 24

Up to $7,000 ($8,000 if 50+).

Question 25

Fill in the blank: Adjusted Gross Income (AGI) is gross income minus _______.

Answer 25

above-the-line deductions.

Question 26

What is the Standard Deduction for Single filers in 2025?

Answer 26

$15,000.

Question 27

What is the limit for State and Local Taxes (SALT)?

Answer 27

Capped at $10,000 ($5,000 if MFS).

Question 28

What is the definition of Taxable Income?

Answer 28

AGI minus deductions.

Question 29

What is a Tax Credit?

Answer 29

Dollar-for-dollar reduction of tax owed.

Question 30

What is the Earned Income Credit (EIC) designed for?

Answer 30

For low/moderate earners with/without children.

Question 31

Fill in the blank: Self-Employment Tax is _______ on net self-employment income.

Answer 31

15.3%.

Question 32

What determines if a taxpayer gets a refund?

Answer 32

If prepayments and credits exceed tax.

Question 33

What is AGI (Adjusted Gross Income)?

Answer 33

Income after above-the-line deductions.

Question 34

What is a Nonrefundable Credit?

Answer 34

Only reduces tax to zero.

Question 35

What is the phaseout in tax terms?

Answer 35

Gradual reduction of deduction/credit as income increases.