Question

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BlueBoole MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) Taxable income for an individual is defined as A) AGI reduced by tax credits. B) AGI reduced by itemized deductions and tax credits. C) gross income reduced by itemized deductions. D) AGI reduced by the greater of the standard deduction or itemized deductions. 1) 2) All of the following items are A) child support payments. B) interest on state and local government bonds. C) interest on corporate bonds. 2) generally excluded from income except D) life insurance proceeds paid by reason of death. 3) 3) All of the following items are included in gross income except A) child support payments received. C) rent income. B) interest earned on a bank account. D) pension benefits received. 4) Which of the following credits is considered a refundable credit? A) earned income credit C) lifetime learning credit B) adoption expense credit D) credit for elderly and disabled 5) A single taxpayer provided the following information for 2018: $80,000 Salary Interest on local government bonds (qualifies as a tax exclusion) Allowable itemized deductions 4,000 13,000 What is taxable income? C) $80,000 D) $62,950 B) $71,000 A) $67,000 ! ! !

Answer 1

Answer to Q#1 (First question in the list): Option-D: AGI reduced by the greater of the standard deduction or itemized deductions Explanation: An individual is allowed to deduct either standard deduction at a flat rate or eligible itemized deductions which use to vary based on actual expenditures incurred and % of eligible deductions etc. IRS allows individuals to claim either standard deduction or itemized deductions which results him/her lower tax bill. In simple words, if his/ her standard deduction at a flat rate is greater than itemized deductions, individual can claim standard deduction as his taxable income will be less; on the other hand, if itemized deductions calculated is higher than standard deduction, taxable income will be less if the individual claims itemized deductions. Higher the taxable income, higher the tax bill; Lower the taxable income, lower the tax bill It is exactly described by the sentence given in Option-D and so option-D is the correct answer.