Income
Why are some things not taxable?
To be fair: Not all money received is the same. Gifts aren’t earned, so they’re not taxed.
To encourage good things: Scholarships for education are often tax-free to support learning.
The standard deduction is:
A) A tax credit that reduces taxes owed
B) A fixed amount that reduces taxable income
C) Only available to businesses
D) Only available to people who itemize
B
Itemized deductions are:
Specific qualified expenses that reduce taxable income
Head of Household filing status generally results in lower taxes than Single filing status.
True or False
True
Which adjustment to income is only available to self-employed taxpayers?
Self employed health insurance
A taxpayer wins a $10,000 cruise in a radio contest. How is this treated?
Taxable Income
Which filing status typically has the highest standard deduction?
Married Filing Jointly $32,200
A married couple pays:
$18,000 state income tax
$7,000 property tax
Under the $10,000 TCJA SALT cap, how much can they deduct?
A) $25,000
B) $18,000
C) $10,000
D) $7,000
C
Tom and Lisa are married. They choose to file separately because one spouse had high medical expenses.
Contributions to a Roth IRA are an adjustment to income. True or False
True
Morgan does freelance web design and earns $1,200 from several clients.
Does Morgan need to report this income to the IRS? Explain why or why not.
Yes, Morgan must report the $1,200 freelance income to the IRS.
Any money earned from freelance work, side gigs, or self-employment—no matter how small—is considered taxable income and must be reported.
Which of the following taxpayers is MOST likely to benefit from the standard deduction instead of itemizing?
A) Homeowner with high mortgage interest
B) High-income taxpayer in a high-tax state
C) Renter with minimal deductible expenses
D) Taxpayer with large charitable donations
C
Medical expenses are deductible only above a certain % of AGI. What is that threshold for 2026?
7.5%
A taxpayer who is unmarried and pays more than half the cost of maintaining a home for a qualifying dependent may file as:
Head of household
A self-employed taxpayer pays $6,000 for health insurance. How is this treated- adjustment to income, itemized deduction, standard deduction?
Adjustment to income
If you receive $10,000 as a gift from a friend, how is it treated for federal income tax?
not taxable. under $19,000
You buy a $100 suit for job interviews, but you also wear it to a family wedding. Is the suit deductible? Why or why not?
No, the suit is not deductible.
Clothing is only deductible if it is required for work and not suitable for everyday wear.
A family pays $15,000 SALT, $12,000 mortgage interest, $6,000 charitable donations. Which is limited under 2026 OBBBA rules?
$40,000 SALT Cap
Henry is married to Lillian, and they have two dependent children. Henry can legally file using which of the following filing statuses?
Student loan interest deduction is limited to a maximum of
$2,500
A taxpayer wins $5,000 in a contest. How is this treated for tax purposes?
A single filer’s standard deduction in 2026 is:
A) $16,100
B) $12,550
C) $24,800
D) $32,200
A
Sam donated $500 to a local animal shelter and received a tote bag valued at $150 as a thank-you gift.
Is the full $500 deductible? Why or why not? If not, how much is deductible?
Deductible amount = Donation amount – Value of goods/services received
No,
Deductible amount = Donation amount – Value of goods/services received
$350.000
Matteo and Jen were married December 31st, 2025? What would the filing status on their tax return be for 2025?
Married Filing Jointly
Adjustments to income are claimed before the standard or itemized deduction. True or False
True