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Quizzes > Business & Finance

Tax Knowledge Assessment Practice Test

Quick, free tax knowledge quiz with instant results and feedback.

Editorial: Review CompletedCreated By: Nykia DesantisUpdated Aug 23, 2025
Difficulty: Moderate
Questions: 20
Learning OutcomesStudy Material
Colorful paper art depicting elements related to a Tax Knowledge Assessment Quiz.

This tax knowledge assessment practice test helps you check core tax rules with 15 quick multiple-choice questions and instant feedback. Use it to spot gaps before filing season or exams, then try our tax return test for deeper prep or focus on indirect taxes with the vat compliance quiz.

What is the term for the income amount after subtracting deductions from gross income?
Tax bracket
Gross income
Taxable income
Adjusted gross income
Taxable income is calculated by subtracting allowable deductions from gross income. It determines the portion of income that is subject to tax.
Which form does an individual typically use to file their US federal income tax return?
Form 1120
Form 1099
Form 1040
Form W-2
Form 1040 is the standard form used by individuals to report their federal income, deductions, and credits. Other forms are used by corporations, employers, or payers.
Which filing status applies to unmarried individuals without dependents?
Qualifying widow(er)
Married filing jointly
Single
Head of household
The Single filing status is used by taxpayers who are unmarried and do not qualify for another status. It reflects the simplest individual tax situation.
What does AGI stand for in tax terminology?
Adjusted Gross Income
Applicable Government Income
Actual Gross Income
Annual Gross Income
AGI stands for Adjusted Gross Income, which is gross income minus certain adjustments like contributions to retirement accounts. It is used to determine eligibility for many deductions and credits.
Which reduces taxable income directly rather than reducing tax liability?
Tax payment
Tax credit
Tax rate
Tax deduction
A tax deduction reduces the amount of income subject to tax. In contrast, a tax credit directly reduces the tax liability itself.
If a taxpayer has a gross income of $52,000 and claims a standard deduction of $13,850 for 2023, what is their taxable income?
$65,850
$13,850
$38,150
$52,000
Taxable income equals gross income minus the standard deduction (52,000 - 13,850 = 38,150). This figure is used to calculate the actual tax owed.
Which best describes the marginal tax rate?
The average rate paid on total taxable income
The rate applied to the last dollar of taxable income
The rate applied to gross income before deductions
The rate withheld from each paycheck
The marginal tax rate is the percentage applied to the last dollar of income earned. It differs from the average rate, which is total tax divided by total taxable income.
Which form must a corporation file annually to report its income to the IRS?
Form 1065
Form 1040
Form 1120
Form W-9
Form 1120 is used by C corporations to report income, gains, losses, deductions, and credits. Other forms are designated for partnerships, individuals, or information returns.
What IRS form does an S corporation use to report its income and deductions?
Form 1120S
Form 1041
Form 1120
Form 1065
Form 1120S is the annual tax return for S corporations, reporting income, losses, and distributions. It passes income and deductions through to shareholders.
Which of the following is a non-refundable tax credit?
Recovery Rebate Credit
Additional Child Tax Credit
Lifetime Learning Credit
Earned Income Tax Credit
The Lifetime Learning Credit can reduce tax liability to zero but cannot result in a refund. Other credits listed are refundable and may produce a refund beyond liability.
By what date must employers furnish Form W-2 to employees each year?
January 31
April 15
February 28
December 31
Employers must furnish Form W-2 to employees by January 31 following the calendar year in which wages were paid. This deadline ensures employees have time to prepare their tax returns.
Under passive activity loss rules, which of the following losses can offset active income?
They can only offset passive income
They can offset active income
They can offset self-employment income
They can offset capital gains from any source
Passive activity losses generally may only offset passive activity income. Losses cannot offset active or portfolio income unless specific exceptions apply.
Which depreciation method allows the fastest write-off of an asset's cost in the early years?
Straight-line
Sum-of-the-years'-digits
Units-of-production
Double-declining balance
The double-declining balance method accelerates depreciation by applying twice the straight-line rate to the declining book value. This front-loads deductions in the early years of an asset's life.
When should a taxpayer choose to itemize deductions instead of taking the standard deduction?
When total itemized deductions exceed the standard deduction
When they are filing married separately
When they have no charitable contributions
When their AGI is below the threshold
Taxpayers benefit from itemizing when the sum of their itemized deductions is greater than the standard deduction. This maximizes the reduction in taxable income.
Which of the following expenses is generally NOT deductible on a personal individual tax return?
Mortgage interest
Medical expenses above AGI threshold
Commuting from home to work
Charitable contributions
Personal commuting expenses between home and workplace are disallowed as deductions. Other listed expenses may qualify under specific tax rules.
Which type of income is added back for Alternative Minimum Tax (AMT) calculations?
Private activity bond interest
Social Security benefits
Qualified business income deduction
Standard deduction
Interest from private activity municipal bonds is a preference item added back for AMT purposes. Other deductions or exclusions may also be adjusted under AMT rules.
Post-2017, what is the carryforward period for net operating losses (NOLs) for corporations?
20 years
Indefinite carryforward limited to 80% of taxable income
5 years
2 years
Under the Tax Cuts and Jobs Act, NOLs arising after 2017 can be carried forward indefinitely but are limited to offsetting 80% of taxable income in a given year.
Which strategy defers recognition of capital gains on real estate exchanges under section 1031?
Capital asset sale
Installment sale
Foreclosure sale
Like-kind exchange
A like-kind exchange under IRC Section 1031 allows taxpayers to defer capital gains by reinvesting proceeds in similar property. Other sale methods trigger immediate gain recognition.
Which of the following determines whether a business has state tax nexus?
Federal EIN issuance
Number of employees nationwide
Economic or physical presence in the state
Registration with the state chamber of commerce
Nexus is established through physical presence, economic activity, or other statutory connections in a state. Mere federal registration does not create nexus.
How does Section 179 expense deduction differ from bonus depreciation?
Section 179 has annual dollar limit and applies to qualifying property placed in service, while bonus depreciation has no annual dollar limit
Bonus depreciation must be recaptured immediately
They are identical in all respects
Section 179 applies only to vehicles under 6,000 lbs
Section 179 allows immediate expensing up to an annual limit and phases out after a threshold, whereas bonus depreciation has no dollar limit and applies to most new and used property. These rules differ in scope and limitations.
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Learning Outcomes

  1. Identify key tax terminology and concepts
  2. Analyze different tax scenarios for accuracy
  3. Apply tax calculation methods to real-life examples
  4. Evaluate tax compliance requirements for various entities
  5. Demonstrate understanding of deduction and credit rules
  6. Master strategies for optimizing tax planning decisions

Cheat Sheet

  1. Understand Key Tax Terminology - Dive into the world of taxes by learning terms like adjusted gross income, tax credits, and deductions so you can decode your forms without breaking a sweat. Mastering this lingo turns intimidating tax docs into a friendly puzzle.
  2. Differentiate Between Standard and Itemized Deductions - Decide whether to take the standard deduction or itemize by comparing which option gives you the biggest tax break. Crunching a few numbers now can save you a bundle later.
  3. Grasp the Concept of Tax Brackets - Get how progressive tax rates apply to different income ranges, so you know exactly what slice of your earnings goes to Uncle Sam. Understanding brackets helps you plan smarter and avoid surprises.
  4. Calculate Taxable Income Accurately - Practice subtracting deductions and exemptions from your gross income to nail down the right taxable amount. This ensures you're not paying more taxes than you owe.
  5. Identify Common Tax Credits - Spot credits like the Earned Income Tax Credit (EITC) and Child Tax Credit that directly shrink your tax bill dollar for dollar. They're like bonus boosts you don't want to miss.
  6. Understand Payroll Taxes - Learn about Social Security and Medicare taxes, including current rates and how they're clipped from each paycheck. It's key to knowing where your hard-earned money goes.
  7. Explore Depreciation Methods - Study the Modified Accelerated Cost Recovery System (MACRS) for depreciating business assets over time to maximize write-offs. It's a clever way to spread costs across years and keep more cash in your pocket.
  8. Comprehend the State and Local Tax (SALT) Deduction - Understand the limits and perks of deducting state and local taxes on your federal return so you can strategize the best tax-saving moves. Knowing SALT rules can make a big difference for high-tax states.
  9. Learn About Tax Filing Statuses - Choose the right status like Single, Married Filing Jointly, or Head of Household to influence your tax rates and deductions. The correct status maximizes benefits and minimizes liabilities.
  10. Stay Updated on Tax Law Changes - Keep an eye on recent tax reforms and how they tweak deductions, credits, and overall planning strategies. A little research each year keeps you one step ahead of the curve.
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