CPA Regulation (REG) : Taxable Income
Study concepts, example questions & explanations for CPA Regulation (REG)
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Example Questions
Example Question #1 : Taxable Income
The following year-1 annual report was received by Clark from the qualified defined contribution plan provided by Clark's employer:
- Beginning balance: $12,700
- Employer contribution: 600
- Plan earnings: 250
- Ending balance: $13,550
What income must be included in Clark's gross income for year 1?
$850
$600
$250
$0
$0
Clark did not receive the money in the qualified defined contribution plan, and as such will not have to report the income. Depending on the type of defined contribution plan, Clark may have to report benefits received as income, but only after he is eligible for regular distributions from the retirement plan.
Example Question #2 : Taxable Income
With regard to the inclusion of Social Security benefits in gross income, for the Year 18 tax year, which of the following statements is correct?
Eighty-five percent of the Social Security benefits is the maximum amount of benefits to be included in gross income.
The Social Security benefits in excess of modified adjusted gross income are included in gross income.
The Social Security benefits in excess of one half the modified adjusted gross income are included in gross income.
The Social Security benefits in excess of the modified adjusted gross income over a threshold amount are included in gross income.
Eighty-five percent of the Social Security benefits is the maximum amount of benefits to be included in gross income.
Inclusion of Social Security benefits in gross income is largely dependent on the amount and types of other income a taxpayer receives in the year. The result is that these benefits may not be taxed at all, or that at most 85% of benefits will be included in gross income.
Example Question #3 : Taxable Income
Parker was employed for part of the year. Parker received $35,000 of wages, $6,400 from a state unemployment compensation plan, and $2,000 from her former employer’s company paid supplemental unemployment benefit plan. What is the amount of Parker’s gross income?
$37,000
$35,000
$43,400
$41,400
$43,400
Each of these items is included in taxable income. Wages are generally taxable, as are any unemployment benefits received, no matter the source.
Example Question #4 : Taxable Income
A cash basis taxpayer should report gross income:
For the year in which income is either actually or constructively received whether in cash or in property
Only for the year in which income is actually received whether in cash or in property
Only for the year in which income is actually received in cash
For the year in which income is either actually or constructively received in cash only
For the year in which income is either actually or constructively received whether in cash or in property
A cash basis taxpayer should report gross income for the year in which income is either actually or constructively received, whether in cash or in property.
Example Question #2 : Taxable Income
Of the following amounts, which represents an adjustment to AGI for the current tax year?
Child support paid to a former spouse pursuant to a divorce agreement executed in 2014
Child support paid to a former spouse pursuant to a divorce agreement executed in 2019
Alimony paid to a former spouse pursuant to a divorce agreement executed in 2019
Alimony paid to a former spouse pursuant to a divorce agreement executed in 2014
Alimony paid to a former spouse pursuant to a divorce agreement executed in 2014
Alimony paid to a former spouse based on a divorce agreement executed on or before 12/31/18 is an adjustment to gross income.
Example Question #1 : Taxable Income
Of the following, which is an itemized deduction?
Qualified charitable contributions
Expenses related to house maintenance
Expenses related to educating
Expenses related to moving principal residence
Qualified charitable contributions
Qualified charitable contributions are the only itemized deductions listed here.
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