EA Exam Part 1 Section 2 UPDATED ACTUAL
Questions and CORRECT Answers
What are the 2 types of income described by the IRS? - CORRECT ANSWER Taxable and nontaxable
Is excluded income considered taxable income? - CORRECT ANSWER No
Why is it important to know the difference between exclusion and deduction? - CORRECT ANSWER Because
certain credits and deductions phase out with higher AGI's
Is municipal bond interest taxable, and should it be reported - CORRECT ANSWER It is not taxable but should be
reported
Are life insurance proceeds taxable, and should they be reported? - CORRECT ANSWER Not taxable and not
reporting needed
What is gross income? - CORRECT ANSWER The total amount of money made in the tax year
How do you calculate AGI? - CORRECT ANSWER Gross Income - Certain Adjustments
Above the line deductions - CORRECT ANSWER Adjustments are subtracted from gross income, whether the
taxpayer uses itemized standard deductions
Why is AGI important? - CORRECT ANSWER It determines eligibility for certain credits and deductions
Above the line deductions - Examples - CORRECT ANSWER - Student loan interest
- Business mileage
- Job-related moving expenses
- Alimony
- Contributions to qualified retirement accounts
- Early withdrawal penalties for CDs and savings accounts
- Qualified tuition and fees
municipal bonds - CORRECT ANSWER a type of investment, often tax-exempt at the federal level, issued by state
and local governments
OBBBA deductions for Qualified Tips - CORRECT ANSWER Up to $25,000
OBBBA deduction for Qualified Overtime - CORRECT ANSWER Up to $12,500 ($25,000 for MFJ)
OBBBA deductions for Car Loan Interest - CORRECT ANSWER Up to $6,000 ($12,000 for MFJ)
OBBBA deduction for seniors - CORRECT ANSWER Up to $6,000 for ages 65 and over ($12,000 for MFJ)
Constructive receipt of income - CORRECT ANSWER Income is deemed to have been received when it is made
available, regardless of whether the taxpayer actually takes possession of it. For instance, if a taxpayer receives a check in
December of Year 1 and deposits it in January Year 2, it was constructively received in Year 1.
unqualified demand - CORRECT ANSWER Funds that are made available so that the taxpayer can withdraw them
at any time without notice or additional conditions.
Claim of Right - CORRECT ANSWER Income recognized when there are no restrictions on use of income (e.g.,
no obligation to repay)
What if the repayment of already reported income is less than $3,000? - CORRECT ANSWER You can claim a tax
credit or deduction when you repay income previously reported
Questions and CORRECT Answers
What are the 2 types of income described by the IRS? - CORRECT ANSWER Taxable and nontaxable
Is excluded income considered taxable income? - CORRECT ANSWER No
Why is it important to know the difference between exclusion and deduction? - CORRECT ANSWER Because
certain credits and deductions phase out with higher AGI's
Is municipal bond interest taxable, and should it be reported - CORRECT ANSWER It is not taxable but should be
reported
Are life insurance proceeds taxable, and should they be reported? - CORRECT ANSWER Not taxable and not
reporting needed
What is gross income? - CORRECT ANSWER The total amount of money made in the tax year
How do you calculate AGI? - CORRECT ANSWER Gross Income - Certain Adjustments
Above the line deductions - CORRECT ANSWER Adjustments are subtracted from gross income, whether the
taxpayer uses itemized standard deductions
Why is AGI important? - CORRECT ANSWER It determines eligibility for certain credits and deductions
Above the line deductions - Examples - CORRECT ANSWER - Student loan interest
- Business mileage
- Job-related moving expenses
- Alimony
- Contributions to qualified retirement accounts
- Early withdrawal penalties for CDs and savings accounts
- Qualified tuition and fees
municipal bonds - CORRECT ANSWER a type of investment, often tax-exempt at the federal level, issued by state
and local governments
OBBBA deductions for Qualified Tips - CORRECT ANSWER Up to $25,000
OBBBA deduction for Qualified Overtime - CORRECT ANSWER Up to $12,500 ($25,000 for MFJ)
OBBBA deductions for Car Loan Interest - CORRECT ANSWER Up to $6,000 ($12,000 for MFJ)
OBBBA deduction for seniors - CORRECT ANSWER Up to $6,000 for ages 65 and over ($12,000 for MFJ)
Constructive receipt of income - CORRECT ANSWER Income is deemed to have been received when it is made
available, regardless of whether the taxpayer actually takes possession of it. For instance, if a taxpayer receives a check in
December of Year 1 and deposits it in January Year 2, it was constructively received in Year 1.
unqualified demand - CORRECT ANSWER Funds that are made available so that the taxpayer can withdraw them
at any time without notice or additional conditions.
Claim of Right - CORRECT ANSWER Income recognized when there are no restrictions on use of income (e.g.,
no obligation to repay)
What if the repayment of already reported income is less than $3,000? - CORRECT ANSWER You can claim a tax
credit or deduction when you repay income previously reported
