CPA Regulation (REG) : Individual income Tax - Exemptions, Credits, & Deductions
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Example Questions
Example Question #1 : Individual Adjustments & Deductions
Of the following, which is not an adjustment to arrive at adjusted gross income?
Self-employed health insurance
Alimony paid pursuant to a divorce settled on or before December 31, 2018
Self-employed FICA (50%)
Qualified mortgage interest paid
Qualified mortgage interest paid
The qualified mortgage interest paid is deductible on Sch A as an itemized deduction.
Example Question #2 : Individual Adjustments & Deductions
Based on the TCJA of 2017, which statement is correct? Included in taxable gross income is:
Alimony payments received as of a divorce in 2015
Child support received as of a divorce in 2019
Child support received as of a divorce in 2015
Alimony payments received as of a divorce in 2019
Alimony payments received as of a divorce in 2015
Child support no matter what year is not included in AGI. Alimony received based on an agreement on or before 12/31/2018 would be included.
Example Question #11 : Individual Income Tax Exemptions, Credits, & Deductions
Which of the following credits can result in a refund even if the individual had no income tax liability?
Earned income credit
Credit for prior year minimum tax
Elderly and permanently and totally disabled credit
Child and dependent care credit
Earned income credit
“Refundable” tax credits are allowable in excess of a taxpayer’s tax obligation and may result in a refund. Among the possible answers, only the earned income credit is “refundable.” While the other answers may result in reducing a tax obligation to zero, they may not be taken in excess of this to result in a tax refund in a given year.
Example Question #11 : Individual Income Tax Exemptions, Credits, & Deductions
How may taxes paid by an individual to a foreign country be treated?
As a credit against federal income taxes due
As a nondeductible expense
As an itemized deduction subject to a 2% floor
As an adjustment to gross income
As a credit against federal income taxes due
Generally speaking, taxes paid to foreign entities result in a dollar-for-dollar reduction in the US tax obligation (a credit), rather than a reduction of taxable income (a deduction).
Example Question #12 : Individual Income Tax Exemptions, Credits, & Deductions
Ron and Leslie have two children, ages 7 and 9. Both children meet the definition of qualifying child. The family has adjusted gross income of $325,000. What is the amount of the child tax credit on the couple’s income tax return?
$2,000
$1,000
$3,000
$4,000
$4,000
The child tax credit is worth up to $2,000 for children classified as dependents who are under age 17 as of the last day of the tax year. The credit phases out starting at $200,000 for single filers, and $400,000 for joint filers.
Example Question #14 : Individual Income Tax Exemptions, Credits, & Deductions
Of the following, which credit can result in a refund even if the individual had no income tax liability?
Earned income credit
Credit for prior year minimum tax
Child and dependent care credit
Elderly and permanently and totally disabled credit
Earned income credit
The earned income credit is refundable. Eligible taxpayers can get advance payments from their employers because the credit is assured.
Example Question #15 : Individual Income Tax Exemptions, Credits, & Deductions
How many taxes paid by an individual to a foreign country be treated?
As an itemized deduction subject to a 2% floor
As a nondeductible expense
As a credit against federal income taxes due
As an adjustment to gross income
As a credit against federal income taxes due
A taxpayer may claim a credit against federal income taxes due for foreign income taxes paid to a foreign country or a US possession. There is a limitation on the amount of the credit an individual can obtain.
Example Question #13 : Individual Income Tax Exemptions, Credits, & Deductions
Of the following, which is a valid tax credit in the United States under the IRS?
Earned income credit
Federal service of 2004 credit
Principal home financing credit
Elderly care credit
Earned income credit
Only the Earned income credit is a real credit. The others are made up of credits.
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