TAXATION EXAM 2026 (US) | 150 COMPLETE QUESTIONS &
ANSWERS | GRADED A+
1. What is the primary purpose of taxation in the United States?
A. To regulate trade
B. To fund government operations
C. To control inflation
D. To increase exports
Answer: B. To fund government operations
Taxes provide revenue for public services such as defense, education, and infrastructure.
2. Which agency administers federal tax laws in the US?
A. Federal Reserve
B. IRS
C. SEC
D. Treasury Board
Answer: B. IRS
The Internal Revenue Service (IRS) is responsible for tax collection and enforcement.
3. What form is typically used by individuals to file federal income tax?
A. 1099
B. W-2
C. 1040
D. 941
Answer: C. 1040
Form 1040 is the standard individual income tax return.
4. Which tax is considered progressive?
A. Sales tax
B. Excise tax
C. Income tax
D. Property tax
Answer: C. Income tax
Progressive taxes increase as income rises.
5. What does FICA tax fund?
A. Military defense
B. Social Security and Medicare
C. Education programs
D. Infrastructure
Answer: B. Social Security and Medicare
FICA supports retirement and healthcare programs.
6. Which filing status generally has the highest tax rates?
A. Married filing jointly
B. Head of household
C. Single
D. Qualified widow(er)
Answer: C. Single
Single filers typically have fewer deductions and higher rates.
,7. What is taxable income?
A. Gross income minus deductions
B. Gross income only
C. Net worth
D. Revenue before expenses
Answer: A. Gross income minus deductions
Taxable income is what remains after allowable deductions.
8. Which of the following is NOT taxable income?
A. Wages
B. Interest income
C. Child support received
D. Business income
Answer: C. Child support received
Child support is not considered taxable income.
9. What is a tax deduction?
A. Direct reduction of tax owed
B. Reduction of taxable income
C. Government penalty
D. Tax refund
Answer: B. Reduction of taxable income
Deductions lower the amount of income subject to tax.
10. What is a tax credit?
A. Reduces taxable income
B. Reduces tax liability directly
C. Increases income
D. A penalty fee
Answer: B. Reduces tax liability directly
Credits reduce taxes dollar-for-dollar.
11. Which form is used to report wages and salary?
A. 1099
B. W-2
C. 1040
D. K-1
Answer: B. W-2
Employers issue W-2 forms to employees.
12. What is the standard deduction?
A. A fixed amount reducing taxable income
B. A tax penalty
C. A refundable credit
D. A business expense
Answer: A. A fixed amount reducing taxable income
It is available to all taxpayers who do not itemize.
13. Which tax is imposed on goods sold?
A. Income tax
B. Sales tax
C. Payroll tax
, D. Capital gains tax
Answer: B. Sales tax
Sales tax applies at the point of purchase.
14. What is capital gains tax applied to?
A. Salary income
B. Investment profits
C. Property tax
D. Interest income
Answer: B. Investment profits
It applies to profit from asset sales.
15. Short-term capital gains are taxed as:
A. Lower than income tax
B. Same as ordinary income
C. Exempt
D. Flat 5%
Answer: B. Same as ordinary income
Assets held under one year are taxed at ordinary rates.
16. Which of the following is a payroll tax?
A. VAT
B. FICA
C. Excise tax
D. Tariff
Answer: B. FICA
Payroll taxes fund Social Security and Medicare.
17. What is withholding tax?
A. Tax on imports
B. Tax deducted at source
C. Property tax
D. Corporate tax
Answer: B. Tax deducted at source
Employers withhold taxes from employee wages.
18. What is the tax year in the US?
A. Calendar year
B. Fiscal year only
C. April–April
D. June–June
Answer: A. Calendar year
Most taxpayers use January to December.
19. What is IRS audit?
A. Tax refund
B. Review of tax returns
C. Tax exemption
D. Tax payment plan
Answer: B. Review of tax returns
Audits verify accuracy of filings.
ANSWERS | GRADED A+
1. What is the primary purpose of taxation in the United States?
A. To regulate trade
B. To fund government operations
C. To control inflation
D. To increase exports
Answer: B. To fund government operations
Taxes provide revenue for public services such as defense, education, and infrastructure.
2. Which agency administers federal tax laws in the US?
A. Federal Reserve
B. IRS
C. SEC
D. Treasury Board
Answer: B. IRS
The Internal Revenue Service (IRS) is responsible for tax collection and enforcement.
3. What form is typically used by individuals to file federal income tax?
A. 1099
B. W-2
C. 1040
D. 941
Answer: C. 1040
Form 1040 is the standard individual income tax return.
4. Which tax is considered progressive?
A. Sales tax
B. Excise tax
C. Income tax
D. Property tax
Answer: C. Income tax
Progressive taxes increase as income rises.
5. What does FICA tax fund?
A. Military defense
B. Social Security and Medicare
C. Education programs
D. Infrastructure
Answer: B. Social Security and Medicare
FICA supports retirement and healthcare programs.
6. Which filing status generally has the highest tax rates?
A. Married filing jointly
B. Head of household
C. Single
D. Qualified widow(er)
Answer: C. Single
Single filers typically have fewer deductions and higher rates.
,7. What is taxable income?
A. Gross income minus deductions
B. Gross income only
C. Net worth
D. Revenue before expenses
Answer: A. Gross income minus deductions
Taxable income is what remains after allowable deductions.
8. Which of the following is NOT taxable income?
A. Wages
B. Interest income
C. Child support received
D. Business income
Answer: C. Child support received
Child support is not considered taxable income.
9. What is a tax deduction?
A. Direct reduction of tax owed
B. Reduction of taxable income
C. Government penalty
D. Tax refund
Answer: B. Reduction of taxable income
Deductions lower the amount of income subject to tax.
10. What is a tax credit?
A. Reduces taxable income
B. Reduces tax liability directly
C. Increases income
D. A penalty fee
Answer: B. Reduces tax liability directly
Credits reduce taxes dollar-for-dollar.
11. Which form is used to report wages and salary?
A. 1099
B. W-2
C. 1040
D. K-1
Answer: B. W-2
Employers issue W-2 forms to employees.
12. What is the standard deduction?
A. A fixed amount reducing taxable income
B. A tax penalty
C. A refundable credit
D. A business expense
Answer: A. A fixed amount reducing taxable income
It is available to all taxpayers who do not itemize.
13. Which tax is imposed on goods sold?
A. Income tax
B. Sales tax
C. Payroll tax
, D. Capital gains tax
Answer: B. Sales tax
Sales tax applies at the point of purchase.
14. What is capital gains tax applied to?
A. Salary income
B. Investment profits
C. Property tax
D. Interest income
Answer: B. Investment profits
It applies to profit from asset sales.
15. Short-term capital gains are taxed as:
A. Lower than income tax
B. Same as ordinary income
C. Exempt
D. Flat 5%
Answer: B. Same as ordinary income
Assets held under one year are taxed at ordinary rates.
16. Which of the following is a payroll tax?
A. VAT
B. FICA
C. Excise tax
D. Tariff
Answer: B. FICA
Payroll taxes fund Social Security and Medicare.
17. What is withholding tax?
A. Tax on imports
B. Tax deducted at source
C. Property tax
D. Corporate tax
Answer: B. Tax deducted at source
Employers withhold taxes from employee wages.
18. What is the tax year in the US?
A. Calendar year
B. Fiscal year only
C. April–April
D. June–June
Answer: A. Calendar year
Most taxpayers use January to December.
19. What is IRS audit?
A. Tax refund
B. Review of tax returns
C. Tax exemption
D. Tax payment plan
Answer: B. Review of tax returns
Audits verify accuracy of filings.
